-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HfykhEX/HWFhAdOUevrEPshZLxZHDNeE5w4IVL1jWJ4h/ReO2+B88h7Adb9k3KlU 9nLUA46q1BfvQ49bD/SIfQ== 0000928816-96-000181.txt : 19960701 0000928816-96-000181.hdr.sgml : 19960701 ACCESSION NUMBER: 0000928816-96-000181 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960430 FILED AS OF DATE: 19960628 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM CONVERTIBLE INCOME GROWTH TRUST CENTRAL INDEX KEY: 0000081247 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 042493360 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-02280 FILM NUMBER: 96588657 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAILSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 8002551581 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND DATE OF NAME CHANGE: 19841212 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM CONVERTIBLE FUND INC /PRED/ DATE OF NAME CHANGE: 19821109 N-30D 1 PUTNAM CONVERTIBLE INCOME-GROWTH TRUST Putnam Convertible Income-Growth Trust SEMIANNUAL REPORT April 30, 1996 [LOGO: BOSTON * LONDON * TOKYO] Fund highlights * "The fund extended its hitting streak in 1995. Besides a successful early-season move toward high-yielding converts, [fund] managers [Charles] Pohl and [Hugh] Mullin shifted the fund away from some of 1995's worst areas, such as the retail and paper industries, early in the year. The fund's overweighting in financials paid off as well. This fund is a triple-crown contender: it offers investors strong returns, limited downside volatility, and an attractive yield." -- Morningstar Mutual Funds analysis, February 2, 1996 CONTENTS 4 Report from Putnam Management 8 Fund performance summary 13 Portfolio holdings 25 Financial statements [GRAPHIC OMITTED: photo of George Putnam] (copyright) Karsh, Ottawa From the Chairman Dear Shareholder: The value-oriented approach to selecting Putnam Convertible Income- Growth Trust's holdings clearly played a major role in the fund's solid performance during the first half of fiscal 1996, the six months ended April 30. Convertibles were also beneficiaries of the strength of the underlying equities whose performance they often mimic. Fund managers Hugh Mullin and Charles Pohl once again demonstrated the positive effect that careful security selection, backed by meticulous fundamental analysis, can have on a portfolio. Such attributes are especially beneficial when the markets, the economy, and fiscal policymakers are sending out a mix of signals. In their report, which follows, Hugh and Charlie review performance thus far in fiscal 1996 and discuss your fund's prospects for the second half and beyond. Respectfully yours, /S/George Putnam George Putnam Chairman of the Trustees June 19, 1996 Report from the Fund Managers Hugh H. Mullin, lead manager Charles G. Pohl Even the sharp rise in interest rates that jarred the fixed-income markets in March has not been enough to stop the upward momentum of convertibles. As their prices were driven higher in tandem with a stronger equity market, convertible bonds and preferred stocks demonstrated their appreciation potential as well as their ability to provide attractive income. By the end of the first half of Putnam Convertible Income-Growth Trust's fiscal year, it was clear that equity- sensitive convertibles -- particularly those of smaller and medium-sized companies -- had provided the most favorable returns. For the six months ended April 30, 1996, net asset value returns for class A, class B, and class M shares totaled 13.26%, 12.86%, and 12.88%, respectively. Returns for class A, class B, and class M shares after taking into account the maximum applicable sales charges, were 6.78%, 7.86%, and 8.94%, respectively, for the same period. Our success in identifying attractively valued securities through meticulous fundamental analysis played a key role in achieving solid performance during the period. * FAVORABLE TECHNICALS BOLSTER CONVERTIBLES In the post-recession period of the early 1990s, many companies tapped the convertible market for recovery capital needed to restore their balance sheets to financial health. These companies hoped to improve their financial condition and growth prospects in order to help their stock prices regain the value forfeited during the economic downturn. Convertible bonds provide an attractive financing vehicle under such conditions. As a result of the built-in equity features they offer, these securities generally require lower interest payments than conventional (nonconvertible) bonds. For many convertible issuers, the strategy has paid off handsomely. In fact, the strength of the equity market in recent years has allowed many companies the opportunity to "force" conversion of their bonds -- a development that has caused the outstanding supply of convertibles to shrink. A forced conversion occurs when a convertible's underlying stock has risen to the point that it is more advantageous for holders to exercise their option to convert the bonds into common shares than to allow the bonds to be called by the company at a given call price. While the quantity of convertibles outstanding has diminished since last fall, demand for these hybrid securities has remained firm. Barring any major change in stock prices, we believe this favorable supply/demand dynamic is likely to continue for the remainder of calendar 1996, which bodes well for the convertible market. * OPPORTUNITIES SPAN DIVERSE SECTORS We constantly search the market for inherently sound companies with attractively valued securities for your fund. This diversified, value- oriented approach continued to prove successful during the period. For instance, during the majority of calendar 1995, we avoided many new issues in the red-hot technology sector. We believed prices of many technology convertibles had reached overvalued levels as investor fervor for technology stocks neared a fever pitch. However, as the sector fell out of favor toward the end of the year, we were able to add several names selectively at very attractive prices -- increasing the fund's allocation to the high-tech sector by approximately 5%. This strategy bore fruit as technology stocks rebounded sharply into 1996. Since our last report, we have taken profits in a number of the fund's energy holdings, particularly smaller oil companies that demonstrated stellar returns during the period. We maintain sizable positions in convertibles issued in industries such as autos and appliance manufacturers, cable television and telecommunications, and banks, savings and loans, and insurance companies. All of the holdings in these various areas share the positive features of sound fundamentals, favorable growth potential, and attractive value. [GRAPHIC OF HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS* Information from chart reads: Oil & gas 8.4% Banks 7.7% Insurance & finance 6.0% Retail 5.5% Consumer services 5.3% *Based on net assets as of 4/30/96. Holdings will vary over time. * NOTEWORTHY ADDITIONS IN CONSUMER AND SERVICE-RELATED INDUSTRIES We believe that among the many alternatives presently available in the convertible bond marketplace, those issued by consumer- and service- oriented companies offer some of the best values. The convertible bonds of Lowes Co., owned prior to the start of the fiscal year, are excellent examples. This home-improvement retailer, which primarily serves rural communities outside major U.S. metropolitan areas, is currently moving toward a larger average store size. This shift is intended to expand the customer base beyond professional contractors to higher-margin individual buyers. We added substantially to the fund's holdings when their price became depressed as a result of reduced profits from lumber sales and investor concerns surrounding the company's expansion plans. We believe your fund will gain as Lowes's new strategy allows the company to improve profitability over time. While the securities of this company, along with others discussed in this report, were viewed favorably at the end of the fiscal period, all portfolio holdings are subject to review and adjustment in accordance with the fund's investment strategy and may well vary in the future. WMX Technologies, a waste collection, removal, and recycling company, is another holding that we expect to profit from strategic change. The company recently made a commitment to its stockholders to reduce capital expenditures and turn its attention toward maximizing cash flow. Management's shift from a growth mentality to that of a mature business represents a sea change in the way WMX has been run for the past 20 years. We estimate the company's stock will likely advance substantially as a result of this renewed emphasis on profitability. Your fund should continue to benefit from WMX's healthy outlook through ownership of both its convertible debt and common stock. During the technology selloff of late 1995, we had the opportunity to purchase a convertible bond issued by Softkey International at bargain levels. Following this consumer software company's announced plans to acquire two major competitors, the value of its securities plummeted -- allowing us to add the name at an unusually low price. We believe that once the new acquisitions are successfully integrated into Softkey's existing operations, an expanded revenue base and desirable product mix will likely cause the company's rapid growth to resume. In the meantime, these bonds are providing a particularly attractive level of current income. TOP 10 HOLDINGS Softkey International, Inc. Computers and software Banco Nacional de Mexico Foreign governmental bond Eastman Kodak Co. Diversified imaging, chemicals, and health care products Rogers Communications Cable broadcasting Atlantic Richfield Co. Oil and gas Mitsubishi Bank Ltd. International finance Baker (J.) Inc. Footwear retailer Cellular Communications, Inc. Cellular telephone services Freeport McMoRan Copper & Gold Co., Inc. Metal mining and exploration Lowes Companies, Inc. Home improvement retailer These holdings represent 9.7% of the fund's net assets as of 4/30/96. Portfolio holdings will vary over time. * CONSTRUCTIVE OUTLOOK We anticipate that the remainder of 1996 will be marked by steady but manageable economic growth and foresee only limited risk of a sharp increase in inflationary pressures. This scenario should provide a productive environment for the futures of the companies represented in your portfolio, though, of course, there can be no guarantees. The composition of the convertible market, now dominated by companies seeking capital to expand their businesses rather than to shore up their balance sheets, has undergone a transformation over the past six years. The resulting market is characterized by a greater number of smaller companies and tends to respond more to movements in stock prices than to fluctuations in interest rates. In light of these changes, we believe adherence to our value-oriented approach will remain crucial in achieving favorable returns for our shareholders over the remainder of fiscal 1996. 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 4/30/96, there is no guarantee the fund will continue to hold these securities in the future. Performance summary Performance should always be considered in light of a fund's investment strategy. Putnam Convertible Income-Growth Trust is designed for investors seeking current income and capital appreciation mainly through bonds and preferred stocks convertible into common stock, with capital conservation as a secondary objective. This section provides, at a glance, information about your fund's performance. Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. TOTAL RETURN FOR PERIODS ENDED 4/30/96 Class A Class B Class M (inception date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ----------------------------------------------------------------------- 6 months 13.26% 6.78% 12.86% 7.86% 12.88% 8.94% - ----------------------------------------------------------------------- 1 year 23.13 16.03 22.22 17.22 22.32 18.06 - ----------------------------------------------------------------------- 5 years 105.75 93.88 -- -- -- -- Annual average 15.52 14.16 -- -- -- -- - ----------------------------------------------------------------------- 10 years 176.13 160.25 -- -- -- -- Annual average 10.69 10.04 -- -- -- -- - ----------------------------------------------------------------------- Life of class -- -- 36.45 33.45 27.54 23.04 Annual average -- -- 11.74 10.86 23.78 19.95 - ----------------------------------------------------------------------- COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/96 S&P 500 Lehman Bros. Corporate Index Bond Index - ----------------------------------------------------------------------- 6 months 13.75% 0.08% - ----------------------------------------------------------------------- 1 year 30.13 9.65 - ----------------------------------------------------------------------- 5 years 100.47 55.18 Annual average 14.92 9.18 - ----------------------------------------------------------------------- 10 years 278.35 140.36 Annual average 14.23 9.16 - ----------------------------------------------------------------------- Life of class B 56.11 16.38 Annual average 17.24 5.67 - ----------------------------------------------------------------------- Life of class M 38.29 12.41 Annual average 32.89 10.52 - ----------------------------------------------------------------------- Performance data represent past results and are not indicative of future performance. They do not take into account any adjustment for taxes payable on reinvested distributions or for payments under the fund's class A distribution plan prior to its implementation. Investment returns and net asset value will fluctuate so that an investor's shares, when sold, may be worth more or less than their original cost. POP assumes 5.75% maximum sales charge for class A shares and 3.50% for class M shares. CDSC for class B shares assumes 5% maximum contingent deferred sales charge. TOTAL RETURN FOR PERIODS ENDED 3/31/96 (most recent calendar quarter) (inception Class A Class B Class M date) (6/29/72) (7/15/93) (3/13/95) NAV POP NAV CDSC NAV POP - ----------------------------------------------------------------------- 6 months 9.11% 2.82% 8.63% 3.63% 8.78% 4.94% - ----------------------------------------------------------------------- 1 year 23.17 16.06 22.25 17.25 22.41 18.13 - ----------------------------------------------------------------------- 5 years 104.77 93.03 -- -- -- -- Annual average 15.41 14.06 -- -- -- -- - ----------------------------------------------------------------------- 10 years 171.13 155.51 -- -- -- -- Annual average 10.49 9.84 -- -- -- -- - ----------------------------------------------------------------------- Life of class -- -- 33.86 30.86 25.12 20.71 Annual average -- -- 11.36 10.43 23.80 19.64 - ----------------------------------------------------------------------- Performance data represent past results and are not indicative of future performance. They do not take into account any adjustment for taxes payable on reinvested distributions or for payments under the fund's class A distribution plan prior to its implementation. Investment returns and net asset value will fluctuate so that an investor's shares, whom sold, may be worth more or less than their original cost. PRICE AND DISTRIBUTION INFORMATION 6 months ended 4/30/96 Class A Class B Class M - ----------------------------------------------------------------------- Distributions (number) 2 2 2 - ----------------------------------------------------------------------- Income $0.498 $0.430 $0.461 - ----------------------------------------------------------------------- Capital gains - ----------------------------------------------------------------------- Long-term 0.448 0.448 0.448 - ----------------------------------------------------------------------- Short-term 0.266 0.266 0.266 - ----------------------------------------------------------------------- Total $1.212 $1.144 $1.175 - ----------------------------------------------------------------------- Share value: NAV POP NAV NAV POP - ----------------------------------------------------------------------- 10/31/95 $19.42 $20.60 $19.30 $19.37 $20.07 - ----------------------------------------------------------------------- 4/30/96 20.69 21.95 20.55 20.60 21.35 - ----------------------------------------------------------------------- Current return NAV POP NAV NAV POP - ----------------------------------------------------------------------- End of period - ----------------------------------------------------------------------- Current dividend rate1 4.64% 4.37% 4.01% 4.39% 4.23% - ----------------------------------------------------------------------- Current 30-day SEC yield2 4.44 4.18 3.70 3.96 3.82 - ----------------------------------------------------------------------- 1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines. TERMS AND DEFINITIONS Class A shares are generally subject to an initial sales charge. Class B shares may be subject to a sales charge upon redemption. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption. Net asset value (NAV) is the value of the fund's assets, minus any liabilities, divided by the number of outstanding shares, not including any initial or contingent deferred sales charge. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the maximum 5.75% sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B shares and assumes redemption at the end of the period. Your fund's CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. COMPARATIVE BENCHMARKS Standard & Poor's 500 Index is an unmanaged list of large-capitalization common stocks and is frequently used as a general gauge of stock market performance. Lehman Brothers Corporate Bond Index is an unmanaged list of corporate bonds. These indexes assume reinvestment of all distributions and do not take into account brokerage commissions or other costs. The fund's portfolio contains securities that do not match those in the indexes and performance of the fund will differ. It is not possible to invest directly in an index. A Putnam perspective on risk and reward You've probably been told how important it is to understand the relationship between an investment's potential rewards and its accompanying risks. Given the cautionary nature of such instructions, it may take most investors a while to realize that risk has a positive side. Every risk signals a potential reward. Selecting only those investments that offer the greatest degree of security generally leads to only modest rewards. Furthermore, even insured or guaranteed investments may be subject to changes in their rates of return or, in some cases, in their principal values. Experienced investors know that no investment is truly risk free and are therefore willing to take on some measure of risk in order to increase their potential gains. The greater the risk, the greater the potential reward. Accepting an appropriate level of investment risk can give you a better chance of outpacing inflation over time and seeking to maximize your investment's return. How much risk? Your financial advisor's feedback and your time horizon can make all the difference in determining how much risk is compatible with your investment goals and your peace of mind. * FITTING YOUR FUND SELECTION TO YOUR RISK TOLERANCE How do you find the right balance between investment risks and their potential rewards? It's helpful to understand the types of risks that can apply to different types of investments, and to look at your own portfolio with this perspective. For short-term goals, your first priority may be managing market risk. Longer-term investors may be more concerned with inflation risk. And all income-oriented investors should consider interest-rate, credit, and prepayment risks carefully. Within each of Putnam's four investment categories, you can select funds with differing levels of risk and reward potential to customize your portfolio. This list covers only the most general types of risks; however, each investment will also have its own specific risks. You will find a more detailed discussion of these risk considerations in each fund's prospectus. * A RUNDOWN OF RISK TYPES MARKET RISK - Most important for stock funds, but relevant to all funds, this is a measure of how sensitive a fund's holdings are to changes in general market conditions. Remember, though, that securities that lose value quickly in market declines may also show the strongest gains in more favorable environments. INTEREST-RATE RISK - Since bond prices fall as interest rates rise, this type of risk is a particular concern for fixed-income inves- tors. However, interest-rate increases can also have a substantial negative effect on the stock market. INFLATION RISK - If your investments cannot keep pace with inflation, your money will begin to lose its purchasing power. Stock investments are generally considered among the best ways of addressing inflation risk over the long term. CREDIT AND PREPAYMENT RISK - Credit risk is the concern that the security's issuer will not be able to meet its payment, while prepayment risk involves the premature payoff of a loan, with a resulting loss of interest income. Professional management and in-depth research are invaluable in managing both these risks. LIQUIDITY RISK - `Not all investments can be readily converted into cash at their perceived market values. Liquidity risk can affect the price of securities held in the fund's portfolio and, thus, the fund's share prices.
Portfolio of investments owned April 30, 1996 (Unaudited) CONVERTIBLE BONDS AND NOTES (46.3%) * PRINCIPAL AMOUNT VALUE Aerospace and Defense (0.8%) - ------------------------------------------------------------------------------------------------------------------ $1,850,000 Diagnostic Retrieval Systems 144A cv. sr. sub. notes 9s, 2003 $1,979,500 3,750,000 Rohr Industries, Inc. cv. sub. deb. 7s, 2012 3,262,500 3,050,000 UNC Inc. cv. sub. deb. 7 1/2s, 2006 2,638,250 ------------ 7,880,250 Automotive (2.0%) - ------------------------------------------------------------------------------------------------------------------ 7,240,000 Exide Corp. 144A cv. sr. sub. notes 2.9s, 2005 4,380,200 7,500,000 Magna International cv. sub. deb. 5s, 2002 7,725,000 3,000,000 Mascotech, Inc. cv. sub. deb. 4 1/2s, 2003 2,280,000 JPY 400,000 Toyota Motor Corp. cv. deb. 1.2s, 1998 (Japan) 4,676,191 ------------ 19,061,391 Banks (2.5%) - ------------------------------------------------------------------------------------------------------------------ $11,355,000 Banco Nacional de Mexico SA cv. bonds 7s, 1999 (Mexico) 10,105,950 1,750,000 Banco Nacional de Mexico 144A cv. company guaranty 7s, 1999 (Bahamas) 1,557,500 7,500,000 Mitsubishi Bank Ltd. International Finance cv. guaranteed notes 3s, 2002 (Japan) 8,662,500 5,000,000 Sumitomo Bank Ltd. cv. deb. 3 1/8s, 2004 (Japan) 4,400,000 ------------ 24,725,950 Basic Industrial Products (1.5%) - ------------------------------------------------------------------------------------------------------------------ 480,000 Agco Corp. cv. sub. deb. 6 1/2s, 2008 1,910,400 3,700,000 SKF Corp. 144A cv. deb. zero %, 2002 (Sweden) 2,796,800 1,000,000 Thermo Electron Corp. cv. deb. 5s, 2001 2,010,000 4,000,000 Thermo Electron Corp. 144A cv. sub. deb. 4 1/4s, 2003 4,860,000 1,590,000 Titan Wheel International Inc. cv. sub. deb. 4 3/4s, 2000 2,114,700 1,270,000 Trimas Corp. cv. sub. deb. 5s, 2003 1,390,650 ------------ 15,082,550 Broadcasting (0.4%) - ------------------------------------------------------------------------------------------------------------------ 3,100,000 International Cabletel Inc. 144A cv. sub. deb. 7 1/4s, 2005 3,689,000 Building and Construction (0.6%) - ------------------------------------------------------------------------------------------------------------------ 1,140,000 Continental Homes Holding cv. sub. notes 6 7/8s, 2002 1,285,350 3,000,000 Empresas Ica Sociedad ADS cv. sub. deb. 5s, 2004(Mexico) 1,908,750 1,500,000 Falcon Homes cv. sub. deb. 7 1/4s, 1999 1,260,000 1,805,000 U.S. Home Corp. cv. deb. 4 7/8s, 2005 1,606,450 ------------ 6,060,550 Business Equipment and Services (3.0%) - ------------------------------------------------------------------------------------------------------------------ $2,300,000 Career Horizons Inc., cv. bonds 7s, 2002 $4,922,000 5,250,000 Conner Peripherals, Inc. cv. sub. deb. 6 1/2s, 2002 5,932,500 1,550,000 Danka Business Systems 144A cv. sub. notes 6 3/4s, 2002 (United Kingdom) 2,693,125 6,000,000 Maxtor Corp. cv. sub. deb. 5 3/4s, 2012 4,380,000 4,800,000 U.S. Office Products Co. cv. sub. notes 5 1/2s, 2001 6,504,000 4,500,000 Unisys Corp. cv. sub. notes 8 1/4s, 2000 4,201,875 ------------ 28,633,500 Computers (2.0%) - ------------------------------------------------------------------------------------------------------------------ 1,165,000 EMC Corp. cv. sub. notes 4 1/4s, 2001 1,331,013 4,325,000 Safeguard Scientifics, Inc. 144A cv. sub. notes 6s, 2006 5,325,156 14,300,000 Softkey International, Inc. 144A cv. sr. notes 5 1/2s, 2000 12,494,625 ------------ 19,150,794 Conglomerates (0.7%) - ------------------------------------------------------------------------------------------------------------------ 1,250,000 Alfa S.A. 144A cv. sub. notes 8s, 2000(Austria) 1,300,000 1,400,000 Dart & Kraft Inc. 144A cv. unsub. deb. 7 3/4s, 1998 3,710,000 1,500,000 Samsung Heavy Industries cv. deb. 1/2s, 2009 1,563,750 ------------ 6,573,750 Consumer Durables (0.7%) - ------------------------------------------------------------------------------------------------------------------ 15,000,000 Whirpool Corp. cv. Liquid Yield Option Notes (LYON) zero %, 2011 6,637,500 Consumer Non Durables (1.7%) - ------------------------------------------------------------------------------------------------------------------ 2,750,000 Bell Sports Corp. cv. sub. deb. 4 1/4s, 2000 1,876,875 13,000,000 Coleman Worldwide Corp. cv. sr. sec. LYON zero %, 2013 4,712,500 2,000,000 Dixie Yarns, Inc. cv. deb. 7s, 2012 1,460,000 3,050,000 Fieldcrest Cannon, Inc. cv. sub. deb. 6s, 2012 2,424,750 8,045,000 Standard Commercial Corp. cv. sub. deb. 7 1/4s, 2007 5,591,275 ------------ 16,065,400 Consumer Services (4.7%) - ------------------------------------------------------------------------------------------------------------------ 14,800,000 ADT Operations Inc. cv. sub. notes zero %, 2010 7,622,000 13,350,000 Boston Chicken, Inc. cv. LYON zero %, 2015 3,988,313 3,905,000 CML Group, Inc. 144A cv. jr. deb. 5 1/2s, 2003 2,421,100 12,750,000 Comcast Corp. cv. notes 1 1/8s, 2007 6,104,063 1,500,000 Comcast Corp. cv. sub. deb. stepped-coupon 3 3/8s, (5 1/2s, 9/9/97), 2005 ++ 1,378,125 20,150,000 Hollinger, Inc. cv. LYON zero %, 2013 6,448,000 7,735,000 Marriot Intl. 144A cv. notes zero %, 2011 4,099,550 2,050,000 National Education Corp. cv. sub. deb. 6 1/2s, 2011 1,681,000 5,500,000 News America Holdings Inc. cv. LYON zero %, 2013 2,722,500 280,000 Pharmaceutical Marketing Services Inc. cv. notes 6 1/4s, 2003 224,000 5,700,000 Pharmaceutical Marketing Services Inc.144A cv. deb. 6 1/4s, 2003 4,588,500 4,630,000 WMS Industries, Inc. cv. deb. 5 3/4s, 2002 4,219,088 ------------ 45,496,239 Electronics and Electrical Equipment (2.5%) - ------------------------------------------------------------------------------------------------------------------ $2,250,000 Altera Corp. 144A cv. sub. notes 5 3/4s, 2002 $2,733,750 5,550,000 Magnetek, Inc. cv. deb. 8s, 2001 5,328,000 4,115,000 Motorola Inc. cv. sub. LYON zero %, 2013 3,230,275 4,745,000 Richardson Electronics Ltd. cv. sub. deb. 7 1/4s, 2006 3,956,144 2,500,000 Siemens Capital Corp. Co. cv. guaranty 8s, 2002 (Germany) 3,450,000 4,000,000 Texas Instruments cv. sub. deb. 2 3/4s, 2002 5,500,000 ------------ 24,198,169 Electronic Components and Instruments (1.1%) - ------------------------------------------------------------------------------------------------------------------ 1,215,000 Thermo Instruments Systems Inc. cv. deb. 3 3/4s, 2000 2,405,700 1,700,000 Thermo Optek Corp. 144A cv. bonds 5s, 2000 1,887,000 1,295,000 Thermo Quest Corp. cv. co. guaranty 5s, 2000 1,437,450 4,620,000 Xilinx, Inc. 144A cv. sub. notes 5 1/4s, 2002 4,550,700 ------------ 10,280,850 Environmental Control (2.3%) - ------------------------------------------------------------------------------------------------------------------ 2,300,000 Enclean, Inc. cv. sub. deb. 7 1/2s, 2001 2,331,324 3,100,000 OHM Corp. cv. sub. deb. 8s, 2006 2,693,125 3,940,000 Thermo Terratech Inc. cv. sub. deb. 144A 4 5/8s, 2003## 4,137,000 4,460,000 U.S. Filter Corp. 144A cv. sub. notes 6s, 2005 5,641,900 1,000,000 U.S. Filter Corp. cv. sub. deb. 5s, 2000 1,495,000 6,378,000 WMX Technologies, Inc. cv. sub. notes 2s, 2005 6,090,990 ------------ 22,389,339 Food (0.4%) - ------------------------------------------------------------------------------------------------------------------ 2,500,000 Chiquita Brands International cv. deb. 7s, 2001 2,200,000 2,400,000 Chiquita Brands International 144A cv. sub. 7s, 2001 2,112,000 ------------ 4,312,000 Food and Beverages (0.2%) - ------------------------------------------------------------------------------------------------------------------ 2,000,000 Grand Metropolitan PLC cv. unsub. deb. 6 1/2s, 2000 (United Kingdom) 2,205,000 Health Care (3.2%) - ------------------------------------------------------------------------------------------------------------------ 4,000,000 Beverly Enterprises cv. sub. deb. 5 1/2s, 2018 4,070,000 2,740,000 Careline, Inc. cv. sr. sub. notes 8s, 2001 3,034,550 2,860,000 Emeritus Corp. 144A cv. sub. deb. 6 1/4s, 2006 3,103,100 8,345,000 Quantum Health Resources, Inc. cv. deb. 4 3/4s, 2000 6,822,038 3,500,000 Tenet Healthcare Corp. cv. sub. notes 6s, 2005 3,762,500 1,738,000 Theratx Inc., cv. sub. deb. 8s, 2002 1,648,928 6,500,000 Theratx Inc. cv. sub. notes 8s, 2002 6,175,000 2,545,000 US Diagnostic Laboratories, Inc. 144A cv. sub. deb. 9s, 2003 2,684,975 ------------ 31,301,091 Hospital Management and Medical Services (1.2%) - ------------------------------------------------------------------------------------------------------------------ $3,270,000 Integrated Health Services, Inc. cv. sub. deb. 6s, 2003 $3,302,700 4,500,000 Integrated Health Services, Inc. cv. sr. sub. deb 5 3/4s, 2001 4,646,250 4,040,000 Sun Healthcare Group Inc. 144A cv. sub. 6s, 2004 3,605,700 ------------ 11,554,650 Insurance and Finance (1.6%) - ------------------------------------------------------------------------------------------------------------------ 5,000,000 NAC Re Corp. cv. deb. 5 1/4s, 2002 4,900,000 3,140,000 Pioneer Financial Services, Inc., cv. sub. notes 6 1/2s, 2003 3,116,450 1,990,000 Trenwick Group, Inc. cv. deb. 6s, 1999 2,149,200 9,000,000 USF&G Corp. cv. sub. notes zero %, 2009 5,163,750 ------------ 15,329,400 Medical Supplies (0.3%) - ------------------------------------------------------------------------------------------------------------------ 1,250,000 Benson Eyecare Corp. cv. sub. notes 8s, 2001 1,375,000 2,000,000 Phoenix Shannon 144A cv. sr. sub. notes 9 1/2s, 2000 1,922,500 ------------ 3,297,500 Metals and Mining (0.6%) - ------------------------------------------------------------------------------------------------------------------ 2,739,500 Quanex Corp. cv. sub. deb. 6.88s, 2007 2,629,920 3,360,000 Teck Corp. cv. sub. deb. 3 3/4s, 2006 (Canada) 3,628,800 ------------ 6,258,720 Oil and Gas (2.0%) - ------------------------------------------------------------------------------------------------------------------ 3,000,000 Apache Corp. 144A cv. sub. deb. 6s, 2002 3,345,000 3,270,000 Cross Timbers Oil Co. cv. deb. 5 1/4s, 2003 3,196,425 2,400,000 Pennzoil Co. cv. sub. deb. 6 1/2s, 2003 3,360,000 915,000 Pogo Producing Co. cv. sub. notes 5 1/2s, 2004 1,564,650 3,170,000 Pride Petroleum Services, Inc. cv. sub. deb. 6 1/4s, 2006 4,715,375 1,000,000 Seacor Holdings. cv. sub. deb. 6s, 2003 1,625,000 2,500,000 Wainoco Oil Corp. cv. sub. deb. 7 3/4s, 2014 2,056,250 ------------ 19,862,700 Oil and Gas Pipelines (0.7%) - ------------------------------------------------------------------------------------------------------------------ 5,000,000 SFP Pipeline Holdings Inc. cv. variable rate exch. deb. 11.16s, 2010++++ 6,450,000 Pharmaceuticals (1.7%) - ------------------------------------------------------------------------------------------------------------------ 3,615,000 Alza Corp. cv. sub. LYON zero %, 2014 1,563,488 1,885,000 Nabi, Inc. 144A cv. sub. notes 6 1/2s, 2003 2,064,075 16,330,000 Roche Holdings, Inc. cv. unsub. LYON zero%, 2010 (Switzerland) 7,185,200 5,425,000 Sandoz Capital BVI Ltd. 144A cv. company guaranty 2s, 2002 (Switzerland) 5,777,625 ------------ 16,590,388 Publishing (0.2%) - ------------------------------------------------------------------------------------------------------------------ 2,000,000 Thomas Nelson, Inc., 144A cv. sub. notes 5 3/4s, 1999 1,970,000 Real Estate (1.6%) - ------------------------------------------------------------------------------------------------------------------ 1,850,000 Alexander Haagen Properties, Ser. A, cv. sub. deb. 7 1/2s, 2001(R) $1,572,500 3,080,000 Camden Property Trust cv. sub. deb. 7.33s, 2001(R) 3,072,300 1,410,000 LTC Properties, Inc. cv. sub. deb. 7 3/4s, 2002 1,388,850 5,400,000 Liberty Property Trust cv. sub. deb. 8s, 2001(R) 5,670,000 3,750,000 Malan Realty Investors cv. sub. notes 9 1/2s, 2004(R) 3,356,250 ------------ 15,059,900 Restaurants (0.1%) - ------------------------------------------------------------------------------------------------------------------ 1,300,000 Flagstar Corp. cv. jr. sub. deb. 10s, 2014 728,000 Retail (3.5%) - ------------------------------------------------------------------------------------------------------------------ 10,325,000 Baker (J.) Inc. cv. deb. 7s, 2002 8,621,375 2,800,000 Ingles Markets, Inc. cv. sub. deb. 10s, 2008 3,290,000 6,625,000 Lowes Companies Inc. cv. deb. 3s, 2003 8,256,406 3,965,000 Michaels Stores, Inc. cv. sub. notes 6 3/4s, 2003 3,429,725 4,500,000 Office Depot Inc. cv. LYON zero %, 2008 2,739,375 1,000,000 Pier 1 Imports, Inc., cv. sub. notes 6 7/8s, 2002 1,190,000 8,200,000 Rite Aid Corp. cv. deb. zero %, 2006 4,264,000 2,350,000 Staples Inc., 144A cv. sub. deb. 4 1/2s, 2000 2,499,813 ------------ 34,290,694 Telecommunications (1.9%) - ------------------------------------------------------------------------------------------------------------------ 10,500,000 Cellular Communications, Inc., 144A cv. sub. deb. zero %, 1999 8,347,500 17,000,000 Rogers Communications cv. deb. 2s, 2005 (Canada) 9,180,000 1,000,000 Tele Communications Intl. cv. sub. deb. 4 1/2s, 2006 942,500 ------------ 18,470,000 Transportation (0.6%) - ------------------------------------------------------------------------------------------------------------------ GBP 3,300,000 British Airport Authority 144A cv. bonds 5 3/4s, 2006 (United Kingdom) 5,378,022 ------------ Total Convertible Bonds and Notes (cost $418,599,523) $448,983,297 COMMON STOCKS (27.0%)* NUMBER OF SHARES VALUE Aerospace and Defense (0.3%) - ------------------------------------------------------------------------------------------------------------------ 35,000 Lockheed Martin Corp. $2,821,875 Automotive (1.3%) - ------------------------------------------------------------------------------------------------------------------ 54,535 Chrysler Corp. 3,422,071 60,000 Ford Motor Co. 2,152,500 71,000 General Motors Corp. 3,851,750 38,000 TRW, Inc. 3,567,250 ------------ 12,993,571 Banks (3.2%) - ------------------------------------------------------------------------------------------------------------------ 59,000 Banc One Corp. 2,050,250 40,000 BankAmerica Corp. 3,030,000 51,000 Bankers Trust New York Corp. 3,538,125 30,000 Comerica, Inc. 1,305,000 65,000 CoreStates Financial Corp. 2,535,000 110,000 Fleet Financial Group, Inc. 4,730,000 63,000 Keycorp 2,433,375 52,000 Morgan (J.P.) & Co., Inc. 4,374,500 60,000 National City Corp. 2,212,500 27,000 NationsBank Corp. 2,153,250 90,000 PNC Bank Corp. 2,722,500 ------------ 31,084,500 Basic Industrial Products (0.5%) - ------------------------------------------------------------------------------------------------------------------ 65,000 Ball Corp. 2,023,125 40,000 General Signal Corp. 1,520,000 25,000 Minnesota Mining & Manufacturing Co. 1,643,750 ------------ 5,186,875 Business Equipment and Services (0.9%) - ------------------------------------------------------------------------------------------------------------------ 44,000 Deluxe Corp. 1,540,000 36,000 Dun & Bradstreet Corp. 2,191,500 23,000 IBM Corp. 2,472,500 16,000 Xerox Corp. 2,344,000 ------------ 8,548,000 Chemicals (1.0%) - ------------------------------------------------------------------------------------------------------------------ 20,000 Dow Chemical Co. 1,777,500 35,000 du Pont (E.I.) de Nemours & Co., Ltd. 2,813,125 3,000 Hoechst AG (Germany) 1,009,595 34,175 Lubrizol Corp. 991,075 25,000 Union Carbide Corp. 1,137,500 65,000 Witco Chemical Corp. 2,218,125 ------------ 9,946,920 Conglomerates (1.0%) - ------------------------------------------------------------------------------------------------------------------ 72,000 Corning, Inc. 2,502,000 70,000 ITT Industries, Inc. + 1,925,000 44,999 Tenneco Inc. 2,469,320 25,000 United Technologies Corp. 2,762,500 ------------ 9,658,820 Consumer Durable Goods (0.2%) - ------------------------------------------------------------------------------------------------------------------ 30,000 Whirlpool Corp. 1,803,750 Consumer Non Durables (1.9%) - ------------------------------------------------------------------------------------------------------------------ 50,000 American Brands, Inc. 2,081,250 25,000 Avon Products, Inc. 2,221,875 20,000 Clorox Co. 1,652,500 32,000 Kimberly-Clark Corp. $2,324,000 67,000 Philip Morris Cos., Inc. 6,038,375 60,000 RJR Nabisco Holdings Corp. + 1,792,500 80,000 Universal Corp. 1,920,000 ------------ 18,030,500 Electronics and Electrical Equipment (1.1%) - ------------------------------------------------------------------------------------------------------------------ 40,000 Eaton Corp. 2,420,000 20,000 Emerson Electric Co. 1,672,500 20,000 General Electric Co. 1,550,000 43,000 Intel Corp. 2,913,250 36,000 Texas Instruments, Inc. 2,034,000 ------------ 10,589,750 Environmental Control (0.4%) - ------------------------------------------------------------------------------------------------------------------ 100,000 WMX Technologies, Inc. 3,475,000 Food and Beverages (1.2%) - ------------------------------------------------------------------------------------------------------------------ 30,000 Anheuser-Busch Cos., Inc. 2,013,750 50,000 Brown Forman Corp. Class B 1,975,000 39,000 General Mills, Inc. 2,164,500 65,000 Heinz (H.J.) Co. 2,201,875 70,000 Sara Lee Corp. 2,170,000 60,000 Whitman Corp. 1,515,000 ------------ 12,040,125 Forest Products (0.5%) - ------------------------------------------------------------------------------------------------------------------ 50,000 Chesapeake Corp. 1,443,750 65,000 Weyerhaeuser Co. 3,217,500 ------------ 4,661,250 Health Care (0.4%) - ------------------------------------------------------------------------------------------------------------------ 90,000 Baxter International, Inc. 3,982,500 Insurance and Finance (2.2%) - ------------------------------------------------------------------------------------------------------------------ 50,000 American General Corp. 1,756,250 40,000 AON Corp. 2,145,000 50,000 Beneficial Corp. 2,762,500 18,000 CIGNA Corp. 2,040,750 68,000 Federal National Mortgage Association 2,082,500 27,000 Lincoln National Corp. 1,302,750 50,000 Norwest Corp. 1,806,250 145,121 Old Republic International Corp. 4,788,993 160,000 USF&G Corp. 2,540,000 ------------ 21,224,993 Metals and Mining (0.3%) - ------------------------------------------------------------------------------------------------------------------ 51,250 Freeport-McMoRan Copper & Gold Co., Inc. Class A $1,620,781 35,086 Freeport-McMoRan Copper & Gold Co., Inc. Class B 1,153,452 ------------ 2,774,233 Paper and Forest Products (0.2%) - ------------------------------------------------------------------------------------------------------------------ 38,000 Temple Inland, Inc. 1,843,000 Oil and Gas (2.4%) - ------------------------------------------------------------------------------------------------------------------ 66,857 Amoco Corp. 4,880,561 15,000 Atlantic Richfield Co. 1,766,250 22,000 British Petroleum PLC ADR (United Kingdom) 2,403,500 37,000 Exxon Corp. 3,145,000 100,000 Occidental Petroleum Corp. 2,575,000 30,000 Questar Corp. 1,050,000 50,000 Repsol S.A. ADS (Spain) 1,850,000 22,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 3,151,500 65,000 Total Corp. ADR (France) 2,226,250 ------------ 23,048,061 Pharmaceuticals (1.2%) - ------------------------------------------------------------------------------------------------------------------ 30,000 American Home Products Corp. 3,165,000 30,000 Bristol-Myers Squibb Co. 2,467,500 77,000 Pharmacia & Upjohn, Inc. 2,945,250 30,000 Warner-Lambert Co. 3,352,500 ------------ 11,930,250 Photography (1.3%) - ------------------------------------------------------------------------------------------------------------------ 131,844 Eastman Kodak Co. 10,086,066 50,000 Polaroid Corp. 2,250,000 ------------ 12,336,066 Publishing (0.5%) - ------------------------------------------------------------------------------------------------------------------ 50,000 McGraw-Hill, Inc. 2,206,250 62,800 Times Mirror Co. Class A 2,676,850 ------------ 4,883,100 Real Estate (0.2%) - ------------------------------------------------------------------------------------------------------------------ 100,000 LTC Properties, Inc. 1,537,500 Retail (2.0%) - ------------------------------------------------------------------------------------------------------------------ 50,000 Dayton Hudson Corp. 4,775,000 300,000 K mart Corp. 3,037,500 50,000 May Department Stores Co. 2,550,000 56,100 Melville Corp. 2,180,888 47,000 Penney (J.C.) Co., Inc. 2,326,500 76,000 Rite Aid Corp. 2,251,500 50,000 Sears, Roebuck & Co. 2,493,750 ------------ 19,615,138 Transportation (0.8%) - ------------------------------------------------------------------------------------------------------------------ 72,100 Canadian National Railway Co. (Canada) $1,369,900 25,000 Conrail, Inc. 1,743,750 15,000 Norfolk Southern Corp. 1,260,000 80,000 Ryder System, Inc. 2,330,000 20,000 Union Pacific Corp. 1,362,500 ------------ 8,066,150 Utilities (2.0%) - ------------------------------------------------------------------------------------------------------------------ 46,000 Bell Atlantic Corp. 2,990,000 15,300 Central & South West Corp. 416,925 35,805 Cinergy Corp. 1,038,345 60,000 Edison International 960,000 47,000 GTE Corp. 2,038,625 53,000 Northeast Utilities Co. 841,375 50,000 NYNEX Corp. 2,456,250 40,000 Potomac Electric Power Co. 995,000 35,000 Public Service Co. of Colorado 1,159,375 40,000 Public Service Enterprise Group, Inc. 1,045,000 43,000 SBC Communications, Inc. 2,150,000 54,000 Sprint Corp. 2,274,750 20,000 Texas Utilities Electric Co. 805,000 ------------ 19,170,645 ------------ Total Common Stocks (cost $206,017,697) $261,252,572 CONVERTIBLE PREFERRED STOCKS (21.3%)* NUMBER OF SHARES VALUE Aerospace and Defense (0.4%) - ------------------------------------------------------------------------------------------------------------------ 70,000 Kaman Corp., $3.25 cv. pfd. $3,517,500 Automotive (1.0%) - ------------------------------------------------------------------------------------------------------------------ 72,250 Federal Mogul Corp., $3.875 cv. pfd. 4,208,563 44,500 Ford Motor Co. Ser. A, $4.20 dep. shs. cv. pfd. 5,162,000 ------------ 9,370,563 Banks (2.0%) - ------------------------------------------------------------------------------------------------------------------ 47,100 Banc One Ser. C, $3.50 cv. pfd. 3,155,700 54,500 First Chicago Corp., Ser. B, $2.875 cv. pfd. 3,828,625 31,500 Matewan Bancshares, Inc., Ser. A, $1.875 cv. pfd. 795,375 40,000 RCSB Financial, Inc., $1.75 cv. pfd. 1,485,000 45,000 Roosevelt Financial Group $3.25 cv. pfd. 3,296,250 66,450 Sovereign Bancorp Inc., $3.13 cv. pfd. 3,987,000 78,350 Union Planters Corp., Ser. E, $2.00 cv. pfd. 3,036,063 ------------ 19,584,013 Basic Industrial Products (0.5%) - ------------------------------------------------------------------------------------------------------------------ 86,450 4,927,650 Broadcasting (0.2%) - ------------------------------------------------------------------------------------------------------------------ 215,000 Triathlon Broadcasting Co., $0.945 cv. pfd. $2,311,250 Building and Construction (0.3%) - ------------------------------------------------------------------------------------------------------------------ 58,800 Southdown, Inc., $2.875 cv. pfd. 2,726,850 Business Equipment and Services (0.3%) - ------------------------------------------------------------------------------------------------------------------ 32,000 Alco Standard Corp., $5.03 cv. pfd. 3,168,000 Coal (0.4%) - ------------------------------------------------------------------------------------------------------------------ 113,500 Pittston Mineral Corp., 144A $3.125 dep. shs. cv. pfd. 4,199,500 Computers (0.6%) - ------------------------------------------------------------------------------------------------------------------ 110,500 Wang Laboratories, Inc., 144A, Ser. B, $3.25 cv. pfd. 6,077,500 Conglomerates (1.3%) - ------------------------------------------------------------------------------------------------------------------ 380,000 Cooper Industries, Inc., $0.81 cv. pfd. 6,555,000 115,000 Corning, Inc., $3.00 cv. pfd. 6,095,000 ------------ 12,650,000 Consumer Non Durables (1.1%) - ------------------------------------------------------------------------------------------------------------------ 156,000 Amway Japan Ltd. (AJL), $1.44 cv. pfd. (Japan) 3,471,000 94,475 Fieldcrest Cannon Ser. A, $3.00 dep. cv. pfd. 4,393,088 472,500 RJR Nabisco Holdings, Ser. C, $ 0.6012 sr. cv. pfd. 2,835,000 ------------ 10,699,088 Consumer Services (0.6%) - ------------------------------------------------------------------------------------------------------------------ 64,500 Service Corp. Intl., $6.25 cv. pfd. 5,708,250 Electronics and Electrical Equipment (0.3%) - ------------------------------------------------------------------------------------------------------------------ 42,100 Elsag Bailey Process Automation N.V. $2.75 cv. pfd. (Netherlands) 1,831,350 65,400 Westinghouse Electric Corp., 144A Ser. C, $1.30 cv. pfd 1,152,675 ------------ 2,984,025 Energy Related (0.3%) - ------------------------------------------------------------------------------------------------------------------ 45,000 Calenergy Capital Trust 144A $3.125 cv. pfd. 2,430,000 Entertainment (0.4%) - ------------------------------------------------------------------------------------------------------------------ 67,770 Station Casinos, Inc., $3.50 cv. pfd. 3,617,224 Food (0.4%) - ------------------------------------------------------------------------------------------------------------------ 85,000 Chiquita Brands International Inc., $5.75 cv. pfd. 3,995,000 Health Maintenance Organizations (0.4%) - ------------------------------------------------------------------------------------------------------------------ 145,000 FHP International Corp., Ser. A, $ 1.25 cv. pfd. 3,969,375 Insurance and Finance (2.2%) - ------------------------------------------------------------------------------------------------------------------ 1,000,000 AON Corp., $3.125 cv. pfd. 6,575,000 124,000 American General Delaware Corp., $3.00 cv. pfd. 6,386,000 95,600 St. Paul Capital LLC, $3.00 cv. pfd. 5,162,400 73,000 USF&G Corp., Ser. A, $4.10 cv. pfd. 3,677,375 ------------ 21,800,775 Metals and Mining (2.4%) - ------------------------------------------------------------------------------------------------------------------ 38,866 Alumax, Inc., Ser. A, $4.00, cv. pfd. 5,431,524 57,125 Amax Gold, Inc., Ser. A, $3.75 cv. pfd. 3,056,188 18,820 Armco, Inc., $3.625, cv. pfd. 950,410 52,000 Cyprus Amax Minerals, Ser. A, $4.00 cv. pfd. 3,107,000 292,300 Freeport-McMoRan Copper Co. Inc., stepped-coupon $1.25 cv. pfd. ($1.75, 8/1/96)++ 8,294,013 60,000 WHX Corp., $3.25 cv. pfd. 2,737,500 ------------ 23,576,635 Oil and Gas (4.0%) - ------------------------------------------------------------------------------------------------------------------ 57,500 Ashland, Inc., $3.125 cv. pfd. 3,787,813 310,181 Atlantic Richfield Co., $2.23 cv. pfd. 8,762,635 29,900 Diamond Shamrock, Inc., 144A $2.50 cv. pfd. 1,950,975 65,000 Grant Geophysical, Inc., $2.4375 cv. pfd. 1,259,375 60,000 Lomak Petroleum, Inc., 144A $4.0625 cv. pfd. 2,340,000 8,000 Maxus Energy Corp., $4.00 cv. pfd. 346,000 40,085 McDermott International, Inc., 144A Ser. C, $2.875 cum. cv. pfd. 1,613,421 44,900 Noble Drilling Corp., $1.50 cv. pfd. 1,666,913 116,800 Occidental Petroleum Corp., 144A $3.875 cv. pfd. 7,241,600 75,520 Santa Fe Energy Resources, Inc., $1.40 cv. pfd. 1,576,480 80,125 Tejas Gas Corp., $2.65 cv. pfd. 3,846,000 82,000 Unocal Corp., 144A $3.50 cv. pfd. 4,551,000 ------------ 38,942,212 Real Estate (1.3%) - ------------------------------------------------------------------------------------------------------------------ 63,500 Oasis Residential, Inc., Ser. A $2.25 cv. pfd.(R) 1,666,875 67,950 Rouse Co., Ser. A $3.25 cv. pfd.(R) 3,737,250 195,000 Security Capital Pacific Trust $1.75 cv. pfd.(R) 4,996,875 74,490 Tanger Factory Outlet Centers $1.575 cv. pfd.(R) 1,638,750 ------------ 12,039,750 Savings and Loan (0.3%) - ------------------------------------------------------------------------------------------------------------------ 50,000 Ahmanson (H.F.) & Co., $3.00 cv. pfd. 2,800,000 Telecommunications (0.4%) - ------------------------------------------------------------------------------------------------------------------ 77,000 Tele-Communications (TCI Group) Ser. A, $1.75 cv. pfd. 3,599,750 Utilities (0.2%) - ------------------------------------------------------------------------------------------------------------------ 45,000 Philippine Long Distance Telephone Co., $7.00 cv. pfd. $2,272,500 ------------ Total Convertible Preferred Stocks (cost $191,907,609) $206,967,410 SHORT-TERM INVESTMENTS (5.3%) * PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------ $10,000,000 Ciesco L.P. effective yield of 5.32%, May 10, 1996 $9,986,700 15,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.18%, May 29, 1996 14,939,567 26,806,000 Interest in $500,000,000 repurchase agreement dated April 30, 1996 with Lehman Brothers, Inc. due May 1, 1996 with respect to various U.S. Treasury obligations -- maturity value of $26,809,984 for an effective yield of 5.35% 26,809,984 ------------ Total Short-Term Investments (cost $ 51,736,251) $51,736,251 ------------ Total investments (cost $868,261,080)*** $968,939,530 - -------------------------------------------------------------------------------------------------------------------- * Percentages indicated are based on net assets of $ 970,257,833. *** The aggregate identified cost on a tax basis is $868,441,928, resulting in gross unrealized appreciation and depreciation of $121,944,706 and $21,447,104, respectively, or net unrealized appreciation of $100,497,602. + Non-income-producing security. ++ The interest rate and dividend date shown parenthetically represent the new interest and dividend rate to be paid and the date the fund will begin receiving interest or dividends at this rate. ++++ Income may be received in cash or additional securities at the discretion of the issuer. ## When-issued securities (Note 1). (R) Real Estate Investment Trust. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR or ADS after the name of a foreign holding stands for American Depository Receipts or American Depository Shares, respectively, representing ownership of foreign securities on deposit with a domestic custodian bank. - -------------------------------------------------------------------------------------------- Forward Currency Contracts to Sell at April 30, 1996 (Aggregate face value $4,180,150) Unrealized Market Aggregate Face Delivery Appreciation/ Value Value Date (Depreciation) - -------------------------------------------------------------------------------------------- Japanese Yen $4,161,186 $4,042,341 1/28/98 $(118,845) Japanese Yen 47,342 45,962 1/28/97 (1,380) Japanese Yen 46,270 44,885 7/29/96 (1,385) Japanese Yen 46,264 46,962 7/28/97 698 - -------------------------------------------------------------------------------------------- $(120,912) - -------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities April 30, 1996 (Unaudited) Assets - ---------------------------------------------------------------------------- Investments in securities, at value (identified cost $868,261,080)(Note 1) $968,939,530 - ---------------------------------------------------------------------------- Cash 2,914,016 - ---------------------------------------------------------------------------- Dividends and interest receivable 7,019,910 - ---------------------------------------------------------------------------- Receivable for shares of the fund sold 1,276,391 - ---------------------------------------------------------------------------- Receivable for securities sold 7,481,986 - ---------------------------------------------------------------------------- Receivable for open forward currency contracts 698 - ---------------------------------------------------------------------------- Total assets 987,632,531 Liabilities - ---------------------------------------------------------------------------- Payable for securities purchased 14,905,341 - ---------------------------------------------------------------------------- Payable for shares of the fund repurchased 353,042 - ---------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 1,390,512 - ---------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 244,387 - ---------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 2,408 - ---------------------------------------------------------------------------- Payable for administrative services (Note 2) 1,176 - ---------------------------------------------------------------------------- Payable for distribution fees (Note 2) 266,536 - ---------------------------------------------------------------------------- Payable for open forward currency contracts 121,610 - ---------------------------------------------------------------------------- Other accrued expenses 89,686 - ---------------------------------------------------------------------------- Total liabilities 17,374,698 - ---------------------------------------------------------------------------- Net assets $970,257,833 Represented by - ---------------------------------------------------------------------------- Paid-in-capital (Notes 1 and 4) 819,073,668 - ---------------------------------------------------------------------------- Undistributed net investment income (Note 1) 6,947,231 - ---------------------------------------------------------------------------- Accumulated net realized gain on investments (Note 1) 43,679,397 - ---------------------------------------------------------------------------- Net unrealized appreciation of investments and assets and liabilities in foreign currencies 100,557,537 - ---------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $970,257,833 Computation of net asset value and offering price - ---------------------------------------------------------------------------- Net asset value and redemption price of class A shares ($854,684,224 divided by 41,306,718 shares) $20.69 - ---------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $20.69)* $21.95 - ---------------------------------------------------------------------------- Net asset value and offering price of class B shares ($110,317,499 divided by 5,368,917 shares)** $20.55 - ---------------------------------------------------------------------------- Net asset value and redemption price of class M shares ($5,256,110 divided by 255,156 shares) $20.60 - ---------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $20.60)* $21.35 - ---------------------------------------------------------------------------- * 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.
Statement of operations Six months ended April 30, 1996 (Unaudited) Investment Income - ---------------------------------------------------------------------------- Interest $13,773,673 - ---------------------------------------------------------------------------- Dividends (net of foreign tax of $17,606) 9,010,979 - ---------------------------------------------------------------------------- Total investment income 22,784,652 Expenses: - ---------------------------------------------------------------------------- Compensation of Manager (Note 2) 2,718,966 - ---------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 774,584 - ---------------------------------------------------------------------------- Compensation of Trustees (Note 2) 13,454 - ---------------------------------------------------------------------------- Administrative services (Note 2) 7,030 - ---------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 1,004,814 - ---------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 463,425 - ---------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 11,991 - ---------------------------------------------------------------------------- Reports to shareholders 40,968 - ---------------------------------------------------------------------------- Registration fees 225 - ---------------------------------------------------------------------------- Auditing 16,419 - ---------------------------------------------------------------------------- Legal 7,251 - ---------------------------------------------------------------------------- Postage 51,999 - ---------------------------------------------------------------------------- Other 7,470 - ---------------------------------------------------------------------------- Total expenses 5,118,596 - ---------------------------------------------------------------------------- Expense reduction (Note 2) (186,950) - ---------------------------------------------------------------------------- Net expenses 4,931,646 - ---------------------------------------------------------------------------- Net investment income 17,853,006 - ---------------------------------------------------------------------------- Net realized gain on investments (Notes 1 and 3) 43,847,506 - ---------------------------------------------------------------------------- Net unrealized depreciation on forward currency contracts du (120,912) - ---------------------------------------------------------------------------- Net unrealized appreciation of investments during the period 49,993,539 - ---------------------------------------------------------------------------- Net gain on investments 93,720,133 - ---------------------------------------------------------------------------- Net increase in net assets resulting from operations $111,573,139 - ---------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets Six months ended Year ended April 30 October 31 1996* 1995 - --------------------------------------------------------------------------------------------- Increase in net assets - --------------------------------------------------------------------------------------------- Operations: - --------------------------------------------------------------------------------------------- Net investment income $17,853,006 $35,523,538 - --------------------------------------------------------------------------------------------- Net realized gain on investments 43,847,506 31,193,122 - --------------------------------------------------------------------------------------------- Net unrealized appreciation of investment and assets and liabilities in foreign currencies 49,872,627 37,340,783 - --------------------------------------------------------------------------------------------- Net increase in net assets resulting from operations 111,573,139 104,057,443 - --------------------------------------------------------------------------------------------- Distributions to shareholders - --------------------------------------------------------------------------------------------- From net investment income: Class A (19,799,616) (36,798,209) - --------------------------------------------------------------------------------------------- Class B (1,980,163) (2,264,082) - --------------------------------------------------------------------------------------------- Class M (76,115) (28,669) - --------------------------------------------------------------------------------------------- From net realized gain on investments: Class A (27,734,872) (42,106,385) - --------------------------------------------------------------------------------------------- Class B (3,018,957) (2,126,191) - --------------------------------------------------------------------------------------------- Class M (80,557) -- - --------------------------------------------------------------------------------------------- Increase from capital share transactions (Note 4) 77,667,025 83,596,336 - --------------------------------------------------------------------------------------------- Total increase in net assets 136,549,884 104,330,243 - --------------------------------------------------------------------------------------------- Net assets - --------------------------------------------------------------------------------------------- Beginning of period 833,707,949 729,377,706 - --------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $6,947,231 and $10,950,119, respectively) $970,257,833 $833,707,949 - --------------------------------------------------------------------------------------------- *Unaudited The accompanying notes are an integral part of these financial statements.
Financial highlights (For a share outstanding throughout the period) March 13, 1995 Six months (commencement Six months Year ended of operations) ended ended April 30 October 31 April 30 October 31 - -------------------------------------------------------------------------------------------- 1996*+ 1995 1996*+ 1995 - -------------------------------------------------------------------------------------------- Class M - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $19.37 $17.79 $19.30 $19.00 - ------------------------------------------------------------------------------------------- Investment operations - ------------------------------------------------------------------------------------------- Net investment income 0.36 .64 .33 .69 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 2.04 1.64 2.06 1.61 - ------------------------------------------------------------------------------------------- Total from investment operations 2.40 2.28 2.39 2.30 - ------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------- From net investment income (.46) (.70) (.43) (.84) - ------------------------------------------------------------------------------------------- From net realized gain on investments (.71) -- (.71) (1.16) - ------------------------------------------------------------------------------------------- Total distributions (1.17) (.70) (1.14) (2.00) - ------------------------------------------------------------------------------------------- Net asset value, end of period $20.60 $19.37 $20.55 $19.30 - ------------------------------------------------------------------------------------------- Total investment return at net asset value (%) (a) 12.88(b) 12.99(b) 12.86(b) 13.54 - ------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $5,256 $1,753 $110,317 $75,309 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .75(b) 1.04(b) .88(b) 1.91 - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.86(b) 2.89(b) 1.61(b) 3.92 - ------------------------------------------------------------------------------------------- Portfolio turnover (%) 29.15(b) 69.52 29.15(b) 69.52 - ------------------------------------------------------------------------------------------- Average commission rate paid (d) 0.0568 -- 0.0568 -- - ------------------------------------------------------------------------------------------- Financial highlights (Continued) (For a share outstanding throughout the period) July 15, 1993 Year (commencement Six months ended of operations) ended October 31 October 31 April 30 - -------------------------------------------------------------------------------------------- 1994 1993 1996* 1995 - -------------------------------------------------------------------------------------------- Class B - -------------------------------------------------------------------------------------------- Net asset value, beginning of period $20.35 $19.53 $19.42 $19.09 - -------------------------------------------------------------------------------------------- Investment operations - -------------------------------------------------------------------------------------------- Net investment income .74 .23 .40 .85 - -------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.55) .82 2.08 1.60 - -------------------------------------------------------------------------------------------- Total from investment operations .19 1.05 2.48 2.45 - -------------------------------------------------------------------------------------------- Less distributions: - -------------------------------------------------------------------------------------------- From net investment income (.66) (.23) (.50) (.96) - -------------------------------------------------------------------------------------------- From net realized gain on investments (.88) -- (.71) (1.16) - -------------------------------------------------------------------------------------------- Total distributions (1.54) (.23) (1.21) (2.12) - -------------------------------------------------------------------------------------------- Net asset value, end of period $19.00 $20.35 $20.69 $19.42 - -------------------------------------------------------------------------------------------- Total investment return at net asset value (%) (a) 1.00 5.43(b) 13.26(b) 14.38 - -------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $31,432 $4,439 $854,684 $756,645 - -------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.71 .52(b) .53(b) 1.16 - -------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 3.58 .91(b) 2.03(b) 4.64 - -------------------------------------------------------------------------------------------- Portfolio turnover (%) 48.37 66.63 29.15(b) 69.52 - -------------------------------------------------------------------------------------------- Average commission rate paid (d) -- -- 0.0568 -- - -------------------------------------------------------------------------------------------- Financial highlights (Continued) (For a share outstanding throughout the period) Year ended October 31 - ------------------------------------------------------------------------------------------- 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------- Class A - ------------------------------------------------------------------------------------------- Net asset value, beginning of period $20.38 $17.60 $15.78 $12.12 - ------------------------------------------------------------------------------------------- Investment operations - ------------------------------------------------------------------------------------------- Net investment income .81 .87 .89 .88 - ------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (.46) 2.87 1.89 3.74 - ------------------------------------------------------------------------------------------- Total from investment operations .35 3.74 2.78 4.62 - ------------------------------------------------------------------------------------------- Less distributions: - ------------------------------------------------------------------------------------------- From net investment income (.74) (.96) (.96) (.96) - ------------------------------------------------------------------------------------------- From net realized gain on investments (.90) -- -- -- - ------------------------------------------------------------------------------------------- Total distributions (1.64) (.96) (.96) (.96) - ------------------------------------------------------------------------------------------- Net asset value, end of period $19.09 $20.38 $17.60 $15.78 - ------------------------------------------------------------------------------------------- Total investment return at net asset value (%) (a) 1.84 21.74 18.16 39.05 - ------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $697,946 $707,969 $599,866 $570,752 - ------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 0.96 0.96 1.11 1.15 - ------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 4.16 4.55 5.32 6.07 - ------------------------------------------------------------------------------------------- Portfolio turnover (%) 48.37 66.63 59.89 78.72 - ------------------------------------------------------------------------------------------- Average commission rate paid (d) -- -- -- -- - ------------------------------------------------------------------------------------------- * Unaudited + Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges. (b) Not annualized. (c) The ratio of expenses to average net assets for the periods ended October 31, 1995 and thereafter, includes amounts paid through expense offset and brokerage service arrangements. Prior period ratios exclude these amounts. (Note 2). (d) Average commission rate paid is presented for fiscal periods beginning on or after September 1, 1995 in conformance with requirements issued by the SEC.
Notes to financial statements April 30, 1996 (Unaudited) Note 1 Significant accounting policies The fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company. The fund seeks current income and capital appreciation by investing primarily in bonds and preferred stocks convertible into common stock with capital preservation as a secondary objective. The fund offers class A, class B and class M shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately six years, do not pay a front-end sales charge, but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is lower than class B shares and higher than class A shares. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with generally accepted accounting principles and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sale price, or, if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value, and other investments are stated at fair value following procedures approved by the Trustees. B) Joint trading account Pursuant to an exemptive order issued by the Securities and Exchange Commission, the fund may transfer uninvested cash balances into a joint trading account along with the cash of other registered investment companies managed by Putnam Investment Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned subsidiary of Putnam Investments, Inc. and certain other accounts. 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 resale price, including accrued interest. Putnam Management is responsible for determining that the value of these underlying securities is at all times at least equal to the resale price, including accrued interest. D) Security transactions and related investment income Security transactions are accounted for on the trade date (date the order to buy or sell is executed). Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Discounts on zero coupon bonds, stepped-coupon bonds and payment in kind bonds are accreted according to the effective yield method. Securities purchased or sold on a when-issued or delay delivery basis may be settled a month or more after the trade date; interest income is not accrued until settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. E) Forward currency contracts The fund may engage in forward currency contracts, which are agreements between two parties to buy and sell currencies at a set price on a future date, to protect against a decline in value relative to the U.S. dollar of the currencies in which its portfolio securities are demoninated or quoted (or an increase in the value of a currency in which securities a fund intends to buy are denominated, when a fund holds cash reserves and short-term investments). The U.S. dollar value of forward currency contracts is determined using forward currency exchange rates supplied by a quotation service. The market value of the contract will fluctuate with changes in currency exchange rates. The contract is "marked to market" daily and the change in market value is recorded as an unrealized gain or loss. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. The fund could be exposed to risk if the value of the currency changes unfavorably, if the counterparties to the contracts are unable to meet the terms of their contracts or if the fund is unable to enter into a closing position. F) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held and for excise tax on income and capital gains. G) 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 by the fund on the ex- dividend date and paid annually. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. 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. Note 2 Management fee, administrative services, and other transactions Compensation of Putnam Management, for managment and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion subject, under current law, to reduction in any year to the extent that expenses (exclusive of brokerage, interest and taxes) of the fund exceed 2.5% of the first $30 million of average net assets, 2.0% of the next $70 million and 1.5% of any excess over $100 million and by the amount of certain brokerage commissions and fees (less expenses) received by affiliates of Putnam Management on the fund's portfolio transactions. The fund reimburses Putnam Management for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Trustees of the fund receive an annual Trustees fee of $1,510 and an additional fee for each Trustee's meeting attended. Trustees who are not interested persons of Putnam Management and who serve on committees of the Trustees receive additional fees for attendance at certain committee meetings. The fund adopted a Trustee Fee Deferral Plan (the "Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain in the fund and are invested in the fund or in other Putnam funds until distribution in accordance with the Plan. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam Investments, Inc. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. For the six months ended April 30, 1996, fund expenses were reduced by $186,950 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 these assets utilized in connection with the expense offset arrangements in an income producing asset if it had not entered into such arrangements. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate up to 0.25%, 1.00% and 0.75% of the average net assets attributable to class A, class B and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average net assets attributable to class A, class B and class M shares respectively. For the six months ended April 30, 1996, Putnam Mutual Funds Corp., acting as underwriter received net commissions of $153,664 and $6,295 from the sale of class A and class M shares, respectively and received $60,971 in contingent deferred sales charges from redemptions of class B shares. A deferred sales charge of up to 1% is assessed on certain redemptions of class A shares. For the six months ended April 30, 1996, Putnam Mutual Funds Corp., acting as underwriter received $784,202 on class A redemptions. Note 3 Purchases and sales of securities During the six months ended April 30, 1996, purchases and sales of investment securities other than short-term investments aggregated $302,391,605 and $247,985,801, respectively. There were no purchases and sales of U.S. government obligations. In determining the net gain or loss on securities sold, the cost of securities has been determined on the identified cost basis. Note 4 Capital shares At April 30, 1996, there was an unlimited number of shares of beneficial interest authorized. Six months ended April 30, 1996 - ---------------------------------------- Class A Shares Amount - ---------------------------------------- Shares sold 4,289,208 $84,812,063 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 845,031 16,646,754 - ---------------------------------------- 5,134,239 101,458,817 Shares repurchased (2,798,793) (56,087,157) - ---------------------------------------- Net increase 2,335,446 $45,371,660 - ---------------------------------------- Year ended October 31, 1995 - ---------------------------------------- Class A Shares Amount - ---------------------------------------- Shares sold 4,766,671 $87,884,467 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 3,881,585 68,270,063 - ---------------------------------------- 8,648,256 156,154,530 Shares repurchased (6,229,599) (116,013,292) - ---------------------------------------- Net increase 2,418,657 $40,141,238 - ---------------------------------------- Six months ended April 30, 1996 - ---------------------------------------- Class B Shares Amount - ---------------------------------------- Shares sold 1,814,470 $35,960,820 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 78,706 1,544,016 - ---------------------------------------- 1,893,176 37,504,836 Shares repurchased (427,068) (8,489,187) - ---------------------------------------- Net increase 1,466,108 $29,015,649 - ---------------------------------------- Year ended October 31, 1995 - ---------------------------------------- Class B Shares Amount - ---------------------------------------- Shares sold 2,743,660 $51,118,308 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 188,683 3,340,889 - ---------------------------------------- 2,932,343 54,459,197 Shares repurchased (683,425) (12,747,189) - ---------------------------------------- Net increase 2,248,918 $41,712,008 - ---------------------------------------- Six months ended April 30, 1996 - ---------------------------------------- Class M Shares Amount - ---------------------------------------- Shares sold 184,465 $3,679,694 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 3,236 64,133 - ---------------------------------------- 187,701 3,743,827 Shares repurchased (23,088) (464,111) - ---------------------------------------- Net increase 164,613 $3,279,716 - ---------------------------------------- March 1, 1995 (commencement of operations) to October 31, 1995 - ---------------------------------------- Class M Shares Amount - ---------------------------------------- Shares sold 115,560 $2,231,842 - ---------------------------------------- Shares issued in connection with reinvestment of distributions 1,279 24,919 - ---------------------------------------- 116,839 2,256,761 Shares repurchased (26,296) (513,671) - ---------------------------------------- Net increase 90,543 $1,743,090 - ---------------------------------------- Our commitment to quality service * CHOOSE AWARD-WINNING SERVICE Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the past six years. In 1995, over 146,000 tests of 56 shareholder service components demonstrated that Putnam outperformed the industry standard in every category. * HELP YOUR INVESTMENT GROW Set up a systematic program for investing with as little as $25 a month from a Putnam money market fund or from your checking or savings account.* * SWITCH FUNDS EASILY You can move money from one account to another with the same class of shares without a service charge. (This privilege is subject to change or termination.) * ACCESS YOUR MONEY QUICKLY You can get checks sent regularly or redeem shares any business day at the then-current net asset value, which may be more or less than the original cost of the shares. For details about any of these or other services, contact your financial advisor or call the toll-free number shown below and speak with a helpful Putnam representative. To make an additional investment in this or any other Putnam fund, contact your financial advisor or call our toll-free number: 1-800-225- 1581. * Regular investing of course, does not guarantee a profit or protect against a loss in a declining market. Fund information INVESTMENT MANAGER Putnam Investment Management, Inc. One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Mutual Funds Corp. One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray TRUSTEES George Putnam, Chairman William F. Pounds, Vice Chairman Jameson Adkins Baxter Hans H. Estin John A. Hill Elizabeth T. Kennan Lawrence J. Lasser Robert E. Patterson Donald S. Perkins George Putnam, III Eli Shapiro A.J.C. Smith W. Nicholas Thorndike OFFICERS George Putnam President Charles E. Porter Executive Vice President Patricia C. Flaherty Senior Vice President John D. Hughes Senior Vice President and Treasurer Lawrence J. Lasser Vice President Gordon H. Silver Vice President Peter Carman Vice President Brett C. Browchuk Vice President Thomas V. Reilly Vice President Hugh H. Mullin Vice President and Fund Manager Charles G. Pohl Vice President and Fund Manager William N. Shiebler Vice President John R. Verani Vice President Paul M. O'Neil Vice President Beverly Marcus Clerk and Assistant Treasurer This report is for the information of shareholders of Putnam Convertible Income-Growth Trust. It may also be used as sales literature when preceded or accompanied by the current prospectus, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary. For more information, or to request a prospectus, call toll free: 1-800-225-1581. 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. - ------------------ Bulk Rate U.S. Postage PAID Putnam Investments - ------------------- PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 25114/008/223/920 6/96 -----END PRIVACY-ENHANCED MESSAGE-----