Putnam
Convertible
Income-Growth
Trust
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
We are pleased to report further progress in Putnam's reforms on behalf
of shareholders. The most significant news is the settlement that has
been reached with the Securities and Exchange Commission and with
regulatory authorities in the Commonwealth of Massachusetts regarding
market timing in Putnam funds. Putnam President and Chief Executive
Officer Ed Haldeman has sent a letter to all shareholders describing the
terms of the settlement. Putnam Investment Management, LLC will pay $55
million to the SEC and $55 million to the Commonwealth of Massachusetts.
Most of the amount to be paid is earmarked for restitution to fund
shareholders. An independent consultant will determine the final amount,
as well as the method and timing of distribution, of the restitution
payments.
Over the past several months, Putnam has also introduced a number of
voluntary reforms. We would like to call your attention to two of them.
Following the performance tables in the Performance Summary of this
report you can find expense and risk comparisons for your fund. The
expense comparison information enables you to estimate the amount you
have actually paid for ongoing expenses such as management fees and
distribution (or 12b-1) fees and to compare these expenses with the
average expenses of funds in the same Lipper peer group. The risk
comparison shows the fund's risk relative to similar funds as tracked by
Morningstar, an independent fund-rating company. We believe the expense
and risk information will provide valuable tools for you and your
financial advisor when you make decisions about your financial program.
It is a pleasure to report that Putnam Convertible Income-Growth Trust
delivered strong performance for the first half of its 2004 fiscal year,
with its returns at net asset value outperforming both its benchmark
index and the average for its Lipper category. Your management team
attributes this success to a combination of several strategies, which
are discussed in the following report.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 16, 2004
Report from Fund Management
Fund highlights
* For the six months ended April 30, 2004, Putnam Convertible
Income-Growth Trust's class A shares returned 8.89% at net asset value
(NAV) and 2.65% at public offering price (POP).
* Due to successful security selection and in-depth research, the fund
results at NAV outperformed its benchmark index, the Goldman Sachs
Convertible 100 Index, which returned 5.29%.
* The fund's results at NAV were also well ahead of the average return
for its Lipper category, Convertible Securities Funds, which was 5.77%,
for the same reasons.
* The fund's quarterly distribution for class A shares was adjusted to
$0.125 per share during the period. See page 6 for more information.
* See the Performance Summary beginning on page 8 for complete fund
performance, comparative performance, and Lipper data.
Performance commentary
The first six months of your fund's 2004 fiscal year were marked by
substantial volatility in both the stock and bond markets. However,
successful security selection -- primarily among a recent crop of new
convertible issues -- enabled the fund to deliver strong performance.
Other drivers of this success included the depth and breadth of Putnam's
research capabilities, as well as our emphasis on small- to
mid-capitalization companies, many of which were not represented in the
benchmark. These lesser-known issuers are not as widely followed and
their securities consequently may be more attractively priced and offer
stronger potential for appreciation. Conversely, this off-benchmark
orientation meant that we missed two high-profile opportunities
involving issuers that were part of the benchmark, but one of these
(discussed on page 6) represented a deliberate choice on our part -- we
did not consider the characteristics of the issue appropriate to the
fund's goals. And the fact that the fund did not participate in these
offerings does not appear to have hurt its performance.
FUND PROFILE
Putnam Convertible Income-Growth Trust pursues current income and
capital appreciation by investing primarily in convertible securities --
corporate bonds and preferred stocks that are convertible into common
stock. It may be an appropriate fund for investors who want to
participate in the potential capital gains of higher-growth sectors,
while also benefiting from fixed-income payments.
Market overview
At the beginning of the fund's semiannual period, both the stock and
bond markets were responding positively to a number of encouraging
economic reports as well as the fact that the Federal Reserve Board was
holding interest rates steady. As calendar 2003 drew to a close,
investor sentiment peaked and major stock market indexes posted
double-digit gains. Since convertible securities are tied to the equity
markets by their potential to convert to the issuing company's common
stock, the stock market is an important driver of convertible bond
performance. During this period, the convertible market generally echoed
the stock market's strength. However, during the last two months of the
semiannual period, the stock market became significantly more volatile.
The terrorist bombing in Madrid drove major indexes down to three-month
lows, and mounting evidence of a solidifying economic recovery in the
United States sparked fears of inflation and higher interest rates.
These factors led to a stock market correction after the close of the
period. Since bond prices fall when interest rates rise, the bond market
experienced a correction as well.
However, another important driver of convertible bond performance is the
credit spread, or the difference in yield between higher-quality and
lower-rated bonds. For much of the period, investors seeking higher
yields became more willing to take on risk and the increasing demand for
these bonds led to higher prices. (Since yields move in the opposite
direction of bond prices, this means that yields on lower-quality bonds
fell, bringing them closer to higher-quality bond yields and narrowing
the spread.) Many convertible issuers have lower-rated debt, so prices
of these securities have thus far benefited from the narrowing trend. We
believe, however, that this trend is not likely to be a key influence
over the remainder of the fiscal year.
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MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/04
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Equities
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Goldman Sachs Convertible 100 Index (convertible securities) 5.29%
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S&P 500 Index (broad stock market) 6.27%
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Russell 2000 Growth Index (small-company growth stocks) 4.01%
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MSCI World Ex-U.S. Index (international stocks) 11.78%
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Bonds
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Citigroup World Government Bond Index (global government
bonds) 3.10%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 0.84%
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JP Morgan Chase Global High Yield Index (global high-yield
corporate bonds) 6.39%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/04.
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Strategy overview
Because convertible securities combine characteristics of both stocks
and bonds, our security selection process is intensely research-driven
and draws on the knowledge and experience of Putnam's equity and
fixed-income investment teams. We rely on our colleagues' assessments of
a company's stock valuation and financial well-being to help us identify
convertible securities with the greatest potential for current income
and capital appreciation. Careful vetting of portfolio candidates is
especially important because many companies that issue convertible bonds
or preferred stock have sub-investment-grade credit ratings. We seek to
manage portfolio risk by taking a value approach and keeping the
portfolio well diversified.
The fund's structure and diversification have also contributed to its
solid performance. While we invest in the same industry sectors as the
benchmark index, we typically target many companies outside the
benchmark that are less well known and that we believe offer more
attractive values. We also overweight or underweight industry sectors,
relative to the benchmark, to reflect our assessment of changing market
trends. The effectiveness of this approach is apparent when we compare
the performance of each portfolio sector with its equivalent in the
benchmark: only one sector (communications services) underperformed
during the period, and did so by a very small margin. The fund's
diversification also helped support its performance toward the end of
the period, when competitors that were more heavily weighted in
harder-hit industries suffered by comparison.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 10/31/03 as of 4/30/04
Consumer cyclicals 6.4% 20.4%
Financial 15.6% 15.4%
Technology 14.0% 14.2%
Health care 13.5% 12.7%
Utilities and power 9.4% 9.7%
Footnote reads:
This chart shows how the fund's top weightings have changed over the
last six months. Weightings are shown as a percentage of net assets.
Holdings will vary over time.
How fund holdings affected performance
Although we have mentioned our bias toward small- and mid-cap,
lesser-known companies, which made the greatest contribution to fund
performance over this period, this does not mean that we avoided
well-established, larger-capitalization companies. Two of the fund's
largest positions, Tyco and Xerox, have been represented in the
portfolio for some time, and the fund's returns benefited as a result.
As long-term shareholders may recall, Tyco, one of the world's largest
conglomerates, experienced problems with its previous management team.
In our opinion, these problems caused its stock price to be unfairly
punished in the market. A new management team has taken control of the
company, bringing a new commitment to improving the balance sheet,
cutting costs, and pruning the business back to a more profitable core.
Just after the end of the period, Tyco reported a positive surprise in
earnings that caused the stock price to surge, and its convertibles
benefited accordingly. Although Xerox had healthy results for the first
quarter of 2004, management's near-term outlook was not as optimistic as
had been widely expected. We believe this reflects only a short-term
setback and are maintaining the fund's position.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
1 Northrop Grumman Corp.
Ser. B, $7.00 cum. cv. pfd.
Aerospace and defense
2 State Street Corp.
6.75% cv. pfd.
Banking
3 Service Corp. International
cv. sub. notes 6.75s, 2008
Commercial and consumer services
4 Amerada Hess Corp.
$3.50 cv. pfd.
Oil and gas
5 Tyco International Group SA
144A cv. company guaranty 2.75s, 2018
(Luxembourg)
Conglomerates
6 Travelers Property Casualty Corp.
$1.125 cv. pfd.
Insurance
7 Xerox Corp.
144A $3.75 cv. pfd.
Photography/imaging
8 Vishay Intertechnology, Inc.
144A cv. sub. notes 3 5/8s, 2023
Electronics
9 Providian Financial Corp.
cv. notes 4s, 2008
Consumer finance
10 Baxter International, Inc.
$3.50 cv. pfd.
Medical technology
Footnote reads:
These holdings represent 20.1% of the fund's net assets as of 4/30/04.
The fund's holdings will change over time.
Companies that made the most significant contributions to performance
over this period did fall into the small- to mid-cap range and the top
five contributors were issued in 2003. IMC Global, which is one of the
world's largest fertilizer companies, issued convertible preferred stock
to help shore up its balance sheet. The company had been in a decline
for some time, so we were able to establish a position when the price of
the underlying stock was very low. During this period, investors became
more aware of the growing need for exports of both fertilizer and grains
to China, which is undergoing significant economic expansion. As grain
prices strengthened, IMC Global's underlying common stock doubled in
value. We recently sold the convertibles, which also increased
dramatically in value.
We had almost as much success with Fleetwood Enterprises, the
manufactured housing and mobile-home company. This industry suffered
from overcapacity in the late '90s and many home companies and
affiliated lenders went out of business. More recently, the industry
appears to be strengthening. Fleetwood needed to float a convertible
issue to help strengthen its balance sheet, and as we were already
familiar with the company's potential through a large stock position
held by another Putnam fund, we were able to act promptly and purchase
the new issue in December 2003. As of the end of the period it had
already gained over 50% in value.
Our decision to buy Arch Coal convertible preferred stock in January
2003 was based on our conviction that the long-term fundamentals of the
coal industry have been improving dramatically. The industry has
benefited from increasing consolidation and the cost of coal is very
competitive with other energy sources. Arch is positioned to benefit
from both trends. The company suffered negative press, and a falling
stock price, over its excessive health benefit costs at the same time
that the convertible bonds were issued; thus we were able to establish a
position in the bonds at a very attractive price. Since then, the bonds
have performed extremely well. We have taken profits on approximately
two-thirds of the position but still maintain exposure.
Another energy company, Amerada Hess, issued a convertible in November
2003, as the environment for energy companies was improving
substantially. Amerada has many gas stations on the east coast that are
supplied through its refinery in the Caribbean, which uses Venezuelan
crude oil. The company had some recent difficulty in their
exploration/production business but they brought in new management to
address the issues. The company's last quarterly earnings were well in
excess of expectations and helped boost the stock price. The convertible
benefited as well.
Your fund has benefited in the past from its exposure to fast food
company CKE Restaurants, which encompasses Carl's Jr., Hardees, and La
Salsa franshises. When CKE came out with another convertible issue in
September 2003, we made a major purchase. The company has an improving
track record in the industry. Recently, CKE refocused Hardee's menu
options on fewer, higher-quality choices. Same-store traffic has
increased as a result. The common stock has been performing well, as has
the convertible.
One position that did not perform well for the fund was State Street
Bank convertible preferred stock. The company recently offered guidance
that was more conservative than many had expected and it sparked a
sell-off of the stock. The convertible price declined in sympathy. State
Street is a major trustee bank that carries enormous cash balances on
behalf of various entities. As such, it stands to benefit if short-term
interest rates rise. However, many investors view State Street in the
same light as most other large financial companies, which have been
selling off due to interest-rate concerns. We do not expect the
fundamentals of this company to be adversely affected by an
interest-rate increase and are maintaining the position.
Not owning shares of Texas Utilities' convertible preferred stock, which
performed very well during the period, represented a missed opportunity
for the fund. The fund also did not purchase any portion of the new
convertible issue from drug company Sepracor. The company offered a new
type of convertible security that appeals primarily to arbitrageurs.
Unlike other convertible bonds, these do not have a coupon, or interest
payment. They are issued at par, or face, value, and investors receive
par value back at the end of the term. Such convertibles may appear
attractive to investors who are anticipating short-term appreciation in
the underlying stock, but we do not feel they are appropriate for your
fund, which emphasizes income and growth and is intended to be a
longer-term investment. Although the Sepracor convertibles had
outstanding performance, the fund's health-care holdings outperformed
those of the benchmark, which more than compensated for our decision to
avoid this issue.
Please note that all holdings discussed in this report are subject to
review in accordance with the fund's investment strategy and may vary in
the future.
OF SPECIAL INTEREST
Given the credit recovery and the strong performance of the convertible
sector, terms of new issuance are not as favorable, and it has become
more challenging to find attractive, high-yielding issues in the
aftermarket. Consequently, the fund's quarterly dividend for class A
shares was adjusted from $0.154 to $0.125 in March 2004, with other
share classes experiencing a similar reduction.
The fund's management team
The fund is managed by the Putnam Large-Cap Value Team. The members of
the team are David L. King (Portfolio Leader), George Maris (Portfolio
Member), Mike Abata, Ronald Bukovac, Bartlett Geer, Deborah Kuenstner,
Coleman Lannum, Christopher Miller, Jeanne Mockard, and Hugh Mullin.
The outlook for your fund
The following commentary reflects anticipated developments that could
affect your fund over the next six months, as well as your management
team's plans for responding to them.
While we are optimistic about the fund's performance potential for the
remainder of the fiscal year, we are not as bullish as we have been in
recent months. Practically speaking, one of the key components of strong
convertible performance -- a narrowing trend in credit spreads --
appears to have stabilized, and we do not expect it to have much
influence over the near term. That means that convertible performance
will be more dependent on the strength of the equity market, which has
recently undergone a significant correction. For much of the last 18
months, both these forces have been supporting convertible performance,
which, in combination with our successful security selection, produced
strong returns for the fund.
The typical convertible issuer is in a capital-intensive business, will
continue to need capital to build its business in the strengthening
economy, and often tends to be in a more cyclical industry than
companies that issue more traditional or higher-quality debt. As the
period ended, we saw more stable, defensive stocks coming into favor
while the stocks of convertible issuers were coming under some pressure.
However, we think that this phenomenon is likely to be short-lived and
that the momentum of the recovery will continue to support the
businesses of convertible issuers, and in turn, the prices of their
securities. Given a rising-rate environment, which will negatively
affect the prices of fixed-income securities, we think that the
appreciation potential of convertibles will contribute to their appeal
in the months ahead. Furthermore, the surge of new issues we saw in 2003
and into early 2004 appears to have slowed, so an increase in demand
combined with a declining supply could very well contribute to strong
performance for these securities over the remainder of the fiscal year
and beyond.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. Lower-rated bonds
may offer higher yields in return for more risk.
Performance summary
This section shows your fund's performance during the first half of its
fiscal year, which ended April 30, 2004. In accordance with regulatory
requirements, we also include performance for the most current calendar
quarter-end. Performance should always be considered in light of a
fund's investment strategy. Data represents past performance. Past
performance does not guarantee future results. More recent returns may
be less or more than those shown. Investment return and principal value
will fluctuate and you may have a gain or a loss when you sell your
shares. For the most recent month-end performance, please visit
www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 4/30/04
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Class A Class B Class C Class M Class R
(inception dates) (6/29/72) (7/15/93) (7/26/99) (3/13/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 8.89% 2.65% 8.48% 3.48% 8.50% 7.50% 8.60% 4.78% 8.83%
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1 year 25.54 18.28 24.63 19.63 24.61 23.61 24.96 20.61 25.27
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5 years 17.10 10.34 12.75 11.15 12.85 12.85 14.30 10.31 15.72
Annual average 3.21 1.99 2.43 2.14 2.45 2.45 2.71 1.98 2.96
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10 years 131.96 118.60 115.28 115.28 115.20 115.20 120.76 113.00 126.29
Annual average 8.78 8.13 7.97 7.97 7.97 7.97 8.24 7.85 8.51
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Annual average
(life of fund) 10.98 10.78 9.99 9.99 10.15 10.15 10.28 10.15 10.71
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). Class
B share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
A 2% redemption fee will be applied to shares exchanged or sold within 5
days of purchase.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/04
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Goldman Sachs Lipper Convertible
Convertible Securities Funds
100 Index category average*
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6 months 5.29% 5.77%
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1 year 16.71 19.65
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5 years 19.17 31.73
Annual average 3.57 5.58
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10 years 134.16 143.09
Annual average 8.88 9.15
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Annual average
(life of fund) --+ 10.91
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/04, there
were 75, 67, 52, and 24 funds, respectively, in this Lipper category.
+ The benchmark index was not in existence at the time of the fund's
inception. The index's inception was 12/31/84.
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PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/04
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Class A Class B Class C Class M Class R
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Distributions (number) 2 2 2 2 2
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Income $0.279 $0.216 $0.223 $0.235 $0.269
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Capital gains -- -- -- -- --
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Total $0.279 $0.216 $0.223 $0.235 $0.269
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Share value: NAV POP NAV NAV NAV POP NAV
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10/31/03 $15.46 $16.40 $15.22 $15.38 $15.35 $15.91 --
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12/1/03+ -- -- -- -- -- -- $15.79
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4/30/04 16.55 17.47* 16.29 16.46 16.43 17.03 16.55
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Current return
(end of period)
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Current dividend rate 1 3.02% 2.86% 2.26% 2.36% 2.51% 2.42% 2.80%
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Current 30-day
SEC yield 2 2.28 2.16 1.53 1.52 1.78 1.72 2.02
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
+ Inception date of class R shares.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
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TOTAL RETURN FOR PERIODS ENDED 3/31/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (6/29/72) (7/15/93) (7/26/99) (3/13/95) (12/1/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 16.00% 9.36% 15.58% 10.58% 15.53% 14.53% 15.66% 11.64% 15.85%
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1 year 35.00 27.26 34.05 29.05 34.02 33.02 34.35 29.62 34.70
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5 years 26.53 19.23 21.89 20.16 21.95 21.95 23.44 19.13 25.01
Annual average 4.82 3.58 4.04 3.74 4.05 4.05 4.30 3.56 4.57
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10 years 134.74 121.24 117.82 117.82 117.81 117.81 123.46 115.66 128.94
Annual average 8.91 8.26 8.10 8.10 8.10 8.10 8.37 7.99 8.64
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Annual average
(life of fund) 11.09 10.88 10.10 10.10 10.25 10.25 10.38 10.25 10.81
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Understanding your
fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in Putnam Convertible Income-Growth Trust Fund from October
31, 2003, to April 30, 2004. It also shows how much a $1,000 investment
would be worth at the close of the period, assuming actual returns and
expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $6 $10 $10 $8 $7
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Ending value (after expenses) $1,089 $1,085 $1,085 $1,086 $1,088
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 4/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of the next page). Expenses are calculated by multiplying the
expense ratio by the average account value for the period; then
multiplying the result by the number of days in the period; and then
dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended April
30, 2004, use the calculation method below. To find the value of your
investment on October 31, 2003, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 10/31/2003 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
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Total
Value of your Expenses paid expenses
investment on 10/31/03 [DIV] $1,000 X per $1,000 = paid
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Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $6 (see table above) = $60
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 4/30/04
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Class A Class B Class C Class M Class R
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Expenses paid per $1,000* $5 $9 $9 $8 $7
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Ending value (after expenses) $1,019 $1,016 $1,016 $1,017 $1,018
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended 4/30/04.
The expense ratio may differ for each share class (see the table at the
bottom of this page). Expenses are calculated by multiplying the expense
ratio by the average account value for the period; then multiplying the
result by the number of days in the period; and then dividing that
result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio 1.09% 1.84% 1.84% 1.59% 1.34%
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Average annualized expense
ratio for Lipper peer group+ 1.28% 2.03% 2.03% 1.78% 1.53%
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+ For class A shares, expenses shown represent the average of the expenses of
front-end load funds viewed by Lipper as having the same investment
classification or objective as the fund, calculated in accordance with
Lipper's standard reporting methodology for comparing expenses within a
given universe. All Lipper data is for the most recent fiscal periods
available as of 3/31/04. For class B, C, M, and R shares, Putnam has
adjusted the Lipper total expense average to reflect higher 12b-1 fees
incurred by these classes of shares. The peer group may include funds
that are significantly larger or smaller than the fund, which may limit
the comparability of the fund's expenses to the Lipper average.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 1.73
U.S. stock
fund average 3.97
0% Increasing Risk 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of 3/31/04. A higher Overall
Morningstar Risk generally indicates that a fund's monthly returns have
varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
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.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
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 (since reduced to 5.25%) 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 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.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without 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 (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
Citigroup World Government Bond Index is an unmanaged index of
government bonds from 14 countries.
Goldman Sachs Convertible 100 Index is an unmanaged index with a target
of 100 securities, including convertible bonds, preferreds, and
mandatory convertible securities. It includes reinvested dividends.
JP Morgan Chase Global High Yield Index is an unmanaged index used to
mirror the investable universe of the U.S. dollar global high-yield
corporate debt market of both developed and emerging markets.
Lehman Government Bond Index is an unmanaged index of U.S. Treasury and
agency securities.
Morgan Stanley Capital International (MSCI) World Ex-U.S. Index is an
unmanaged index of developed and emerging markets excluding the United
States.
Russell 2000 Growth Index is an unmanaged index of those companies in
the Russell 2000 Index chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A note about duplicate mailings
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. Our proxy voting guidelines and policies are
available on the Putnam Individual Investor website,
www.putnaminvestments.com, by calling Putnam's shareholder services line
at 1-800-225-1581, or on the SEC's website, www.sec.gov.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
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.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or loss
the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal 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.
The fund's portfolio
April 30, 2004 (Unaudited)
Convertible bonds and notes (51.2%) (a)
Principal amount Value
Advertising and Marketing Services (2.1%)
- -------------------------------------------------------------------------------
$5,500,000 Interpublic Group Companies, Inc.
144A cv. notes 4 1/2s, 2023 $8,318,750
6,700,000 Lamar Advertising Co. cv. sr. notes
2 7/8s, 2010 7,252,750
--------------
15,571,500
Automotive (0.5%)
- -------------------------------------------------------------------------------
3,900,000 American Axle & Manufacturing
Holdings, Inc. 144A cv.
company guaranty stepped-coupon 2s
(zero %, 2/15/11) 2024 (STP) 3,958,500
Biotechnology (3.8%)
- -------------------------------------------------------------------------------
10,300,000 Amgen, Inc. cv. Liquid Yield Option
Notes (LYON) zero %, 2032 7,609,125
2,500,000 Amylin Pharmaceuticals, Inc. 144A
cv. sr. notes 2 1/2s, 2011 2,462,500
3,700,000 Amylin Pharmaceuticals, Inc. 144A
cv. sr. notes 2 1/4s, 2008 3,787,875
1,600,000 Celgene Corp. cv. sr. notes 1 3/4s,
2008 2,038,000
6,600,000 Celgene Corp. 144A cv. sr. notes
1 3/4s, 2008 8,406,750
5,350,000 MGI Pharma, Inc. 144A cv. sr. sub.
notes stepped-coupon 1.682s (zero %,
3/2/11) 2024 (STP) 4,687,938
--------------
28,992,188
Broadcasting (1.3%)
- -------------------------------------------------------------------------------
10,400,000 Liberty Media Corp. cv. sr. notes
3 1/2s, 2031 9,490,000
Building Materials (1.1%)
- -------------------------------------------------------------------------------
18,100,000 Masco Corp. cv. sr. notes zero %,
2031 8,145,000
Coal (0.5%)
- -------------------------------------------------------------------------------
3,800,000 Massey Energy Co. 144A cv. sr. notes
2 1/4s, 2024 3,885,500
Commercial and Consumer Services (2.1%)
- -------------------------------------------------------------------------------
14,000,000 Service Corp. International cv. sub.
notes 6 3/4s, 2008 15,575,000
Communications Equipment (1.4%)
- -------------------------------------------------------------------------------
4,300,000 Comtech Telecommunications Corp.
144A cv. sr. notes stepped-coupon
2s (zero %, 2/1/11) 2024 (STP) 3,337,875
5,500,000 Lucent Technologies, Inc. cv. debs.
Ser. A, 2 3/4s, 2023 7,095,000
--------------
10,432,875
Computers (1.8%)
- -------------------------------------------------------------------------------
21,000,000 Anixter International, Inc. 144A cv.
LYON zero %, 2033 9,765,000
2,900,000 MSC Software Corp. 144A cv. notes
2 1/2s, 2008 3,733,750
--------------
13,498,750
Conglomerates (2.0%)
- -------------------------------------------------------------------------------
11,400,000 Tyco International Group SA 144A cv.
company guaranty 2 3/4s,
2018 (Luxembourg) 14,919,750
Consumer Finance (1.7%)
- -------------------------------------------------------------------------------
11,600,000 Providian Financial Corp. cv. notes
4s, 2008 13,050,000
Electric Utilities (2.0%)
- -------------------------------------------------------------------------------
327,500 CenterPoint Energy, Inc. cv. sub
notes FRN 2s, 2029 10,930,313
2,425,000 Sierra Pacific Resources 144A cv.
notes 7 1/4s, 2010 4,477,156
--------------
15,407,469
Electronics (3.2%)
- -------------------------------------------------------------------------------
5,900,000 Micron Technology, Inc. cv. sr. sub.
notes 2 1/2s, 2010 7,714,250
4,000,000 Solectron Corp. 144A cv. sr. notes
1/2s, 2034 3,340,000
11,000,000 Vishay Intertechnology, Inc. 144A
cv. sub. notes 3 5/8s, 2023 13,241,250
--------------
24,295,500
Energy (0.7%)
- -------------------------------------------------------------------------------
5,000,000 Halliburton Co. cv. sr. notes
3 1/8s, 2023 5,443,750
Entertainment (1.4%)
- -------------------------------------------------------------------------------
9,500,000 Regal Entertainment Group 144A cv.
notes 3 3/4s, 2008 11,031,875
Food (1.0%)
- -------------------------------------------------------------------------------
3,775,000 General Mills, Inc. cv. debs. zero %, 2022 2,694,406
7,400,000 General Mills, Inc. 144A cv. bonds
zero %, 2022 5,281,750
--------------
7,976,156
Health Care Services (1.0%)
- -------------------------------------------------------------------------------
2,800,000 Manor Care, Inc. cv. company
guaranty 2 5/8s, 2023 3,482,500
3,500,000 Manor Care, Inc. 144A cv. sr. notes
2 1/8s, 2023 4,353,125
--------------
7,835,625
Homebuilding (0.8%)
- -------------------------------------------------------------------------------
4,000,000 Fleetwood Enterprises, Inc. 144A cv.
sub. notes 5s, 2023 6,135,000
Insurance (0.5%)
- -------------------------------------------------------------------------------
4,000,000 Leucadia National Corp. 144A cv. sr.
sub. notes 3 3/4s, 2014 4,055,000
Investment Banking/Brokerage (1.4%)
- -------------------------------------------------------------------------------
5,100,000 Legg Mason, Inc. cv. LYON zero %,
2031 3,716,625
9,783,000 Legg Mason, Inc. 144A cv. LYON
zero %, 2031 7,129,361
--------------
10,845,986
Lodging/Tourism (1.7%)
- -------------------------------------------------------------------------------
4,800,000 Hilton Hotels Corp. cv. sr. notes
3 3/8s, 2023 5,166,000
7,500,000 Hilton Hotels Corp. 144A cv. sr.
notes 3 3/8s, 2023 8,071,875
--------------
13,237,875
Machinery (0.6%)
- -------------------------------------------------------------------------------
3,800,000 Kaydon Corp. 144A cv. notes 4s, 2023 4,398,500
Manufacturing (0.5%)
- -------------------------------------------------------------------------------
9,000,000 Roper Industries, Inc. 144A cv.
bonds stepped-coupon 1.481s
(zero %, 1/15/09) 2034 (STP) 3,870,000
Medical Technology (0.8%)
- -------------------------------------------------------------------------------
1,750,000 Cytyc Corp. 144A cv. sr. notes
2 1/4s, 2024 1,833,125
2,600,000 Serologicals Corp. 144A cv. notes
4 3/4s, 2033 4,010,500
--------------
5,843,625
Metals (1.0%)
- -------------------------------------------------------------------------------
3,700,000 Coeur D'alene Mines Corp. cv. sr.
notes 1 1/4s, 2024 3,371,625
3,000,000 McMoran Exploration Co. 144A cv.
notes 6s, 2008 4,143,750
--------------
7,515,375
Pharmaceuticals (3.0%)
- -------------------------------------------------------------------------------
3,600,000 Allergan, Inc. cv. sr. notes zero %,
2022 3,762,000
4,500,000 Allergan, Inc. 144A cv. sr. notes
zero %, 2022 4,702,500
11,600,000 Alza Corp. cv. sub. debs. zero %,
2020 8,729,000
6,000,000 King Pharmaceuticals, Inc. cv. sr.
notes FRN 2 3/4s, 2021 5,775,000
--------------
22,968,500
Restaurants (0.9%)
- -------------------------------------------------------------------------------
4,600,000 CKE Restaurants, Inc. 144A cv. sub.
notes 4s, 2023 6,612,500
Retail (5.5%)
- -------------------------------------------------------------------------------
5,500,000 Dick's Sporting Goods, Inc. 144A cv.
sr. notes stepped-coupon
1.606s (zero %, 2/18/09) 2024 (STP) 3,767,500
9,100,000 JC Penney Co., Inc. cv. sub. notes
5s, 2008 11,272,625
8,200,000 Lowe's Cos., Inc. cv. LYON zero %,
2021 7,052,000
2,900,000 Pep Boys (The) - Manny, Moe, & Jack
cv. notes 4 1/4s, 2007 3,857,000
7,510,000 Rite Aid Corp. cv. notes 4 3/4s,
2006 8,120,188
3,700,000 TJX Companies, Inc. (The) cv. LYON
zero %, 2021 3,242,125
5,200,000 TJX Companies, Inc. (The) 144A cv.
LYON zero %, 2021 4,556,500
--------------
41,867,938
Software (1.0%)
- -------------------------------------------------------------------------------
6,282,000 Computer Associates International,
Inc. 144A cv. LYON 5s, 2007 7,703,303
Technology Services (3.8%)
- -------------------------------------------------------------------------------
7,300,000 DST Systems, Inc. 144A cv. sr. notes
Ser. A, 4 1/8s, 2023 8,869,500
7,500,000 Fair, Isaac and Co., Inc. 144A cv.
notes 1 1/2s, 2023 7,771,875
3,000,000 Mercury Computer Systems, Inc. 144A
cv. sr. notes 2s, 2024 3,142,500
2,577,000 Safeguard Scientifics, Inc. cv. sub.
notes 5s, 2006 2,589,885
5,060,000 Safeguard Scientifics, Inc. 144A cv.
sr. notes 2 5/8s, 2024 3,649,525
2,975,000 Safeguard Scientifics, Inc. 144A cv.
sub. notes 5s, 2006 2,989,875
--------------
29,013,160
Telecommunications (2.1%)
- -------------------------------------------------------------------------------
4,000,000 NII Holdings, Inc. 144A cv. sr.
notes 2 7/8s, 2034 4,120,000
3,700,000 Primus Telecommunications GP 144A
cv. notes 3 3/4s, 2010 3,667,625
15,187,000 United States Cellular Corp. cv.
LYON zero %, 2015 7,840,289
--------------
15,627,914
--------------
Total Convertible bonds and notes
(cost $351,552,981) $389,204,114
Convertible preferred stocks (44.3%) (a)
Number of shares Value
Aerospace and Defense (3.0%)
- -------------------------------------------------------------------------------
181,500 Northrop Grumman Corp. Ser. B, $7.00
cum. cv. pfd. $23,050,500
Automotive (2.1%)
- -------------------------------------------------------------------------------
139,900 Ford Motor Company Capital Trust II
$3.25 cum. cv. pfd. 7,869,375
310,900 General Motors Corp. $1.313 cv. pfd. 7,811,363
--------------
15,680,738
Banking (2.6%)
- -------------------------------------------------------------------------------
61,500 Commerce Capital Trust II $2.975
cum. cv. pfd. 3,897,563
69,350 State Street Corp. 6.75% cv. pfd. 16,210,563
--------------
20,108,126
Beverage (1.1%)
- -------------------------------------------------------------------------------
270,100 Constellation Brands, Inc. Ser. A,
$1.438 cv. pfd. 8,271,813
Broadcasting (2.0%)
- -------------------------------------------------------------------------------
7,400 Radio One, Inc. 6.50% cum. cv. pfd. 7,923,550
160,200 Sinclair Broadcast Group, Inc.
Ser. D, $3.00 cv. pfd. 7,028,775
--------------
14,952,325
Building Materials (1.0%)
- -------------------------------------------------------------------------------
179,300 TXI Capital Trust I $2.75 cv. pfd. 7,866,788
Coal (0.5%)
- -------------------------------------------------------------------------------
47,000 Arch Coal, Inc. $2.50 cum. cv. pfd. 3,818,750
Combined Utilities (1.1%)
- -------------------------------------------------------------------------------
122,530 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 8,163,561
Consumer Finance (1.0%)
- -------------------------------------------------------------------------------
156,700 Capital One Financial Corp. $3.125
cv. pfd. 7,737,063
Containers (0.8%)
- -------------------------------------------------------------------------------
177,400 Owens-Illinois, Inc. $2.375 cv. pfd. 6,186,825
Electric Utilities (3.8%)
- -------------------------------------------------------------------------------
144,500 Cinergy Corp. $4.75 cv. pfd. 8,868,688
136,900 Dominion Resources, Inc. $4.75 cv.
pfd. 7,649,288
148,000 FPL Group, Inc. $4.25 units cv. pfd. 8,251,000
105,400 Sierra Pacific Resources $4.50 units
cum. cv. pfd. 3,773,320
--------------
28,542,296
Electronics (0.4%)
- -------------------------------------------------------------------------------
221,000 Solectron Corp. 1.813 units cv. pfd. 3,149,250
Energy (0.5%)
- -------------------------------------------------------------------------------
80,920 Hanover Compressor Capital Trust
$3.625 cv. pfd. 4,106,690
Financial (0.5%)
- -------------------------------------------------------------------------------
154,600 PMI Group, Inc. (The) $1.469 cv.
pfd. 4,251,500
Forest Products and Packaging (1.0%)
- -------------------------------------------------------------------------------
326,900 Smurfit-Stone Container Corp.
Ser. A, $1.75 cum. cv. pfd. 7,845,600
Health Care Services (2.3%)
- -------------------------------------------------------------------------------
89,300 Anthem, Inc. $3.00 units cv. pfd. 9,242,550
128,200 Omnicare, Inc. 4.00% cv. pfd. 7,948,400
--------------
17,190,950
Insurance (6.0%)
- -------------------------------------------------------------------------------
407,600 Chubb Corp. (The) $1.75 cv. pfd. 11,565,650
184,800 Hartford Financial Services Group,
Inc. (The) $3.50 cv. pfd. 11,295,900
586,800 Travelers Property Casualty Corp.
$1.125 cv. pfd. 14,517,432
316,100 XL Capital, Ltd. $1.625 cv. pfd.
(Cayman Islands) 8,019,457
--------------
45,398,439
Medical Technology (1.6%)
- -------------------------------------------------------------------------------
225,000 Baxter International, Inc. $3.50 cv.
pfd. 12,188,244
Metals (0.9%)
- -------------------------------------------------------------------------------
7,985 Freeport-McMoRan Copper & Gold, Inc.
144A 5.50% cv. pfd. 7,042,770
Natural Gas Utilities (2.9%)
- -------------------------------------------------------------------------------
268,700 ONEOK, Inc. $2.125 units cv. pfd. 7,765,430
272,600 Sempra Energy $2.125 units cv. pfd. 7,837,250
100,890 Southern Union Co. $2.875 cv. pfd. 6,116,456
--------------
21,719,136
Oil & Gas (2.6%)
- -------------------------------------------------------------------------------
232,000 Amerada Hess Corp. $3.50 cv. pfd. 15,573,000
51,600 Chesapeake Energy Corp. 144A $3.00
cv. pfd. 3,895,800
--------------
19,468,800
Photography/Imaging (2.6%)
- -------------------------------------------------------------------------------
40,640 Xerox Corp. 6.25% cv. pfd. 5,105,400
187,400 Xerox Corp. 144A $3.75 cv. pfd. 14,429,800
--------------
19,535,200
Railroads (1.1%)
- -------------------------------------------------------------------------------
15,000 Kansas City Southern Industries,
Inc. 144A 4.25% cum. cv. pfd. 8,510,625
Real Estate (1.0%)
- -------------------------------------------------------------------------------
153,800 Host Marriott Financial Trust $3.375
cv. pfd. 7,593,875
Retail (--%)
- -------------------------------------------------------------------------------
2,000,000 J. Baker, Inc. $7.00 cv. pfd. 2
Shipping (0.5%)
- -------------------------------------------------------------------------------
93,700 Teekay Shipping Corp. 1.813 cv. pfd.
(Marshall Islands) 3,505,317
Telecommunications (0.9%)
- -------------------------------------------------------------------------------
292,300 CenturyTel, Inc. $1.719 cv. pfd. 7,197,888
Waste Management (0.5%)
- -------------------------------------------------------------------------------
55,700 Allied Waste Industries, Inc. $3.125
cum. cv. pfd. 3,871,150
--------------
Total Convertible preferred stocks
(cost $308,438,873) $336,954,221
Common stocks (2.8%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
68,700 Altria Group, Inc. $3,804,606
49,100 Bank of America Corp. 3,952,059
65,000 Fannie Mae 4,466,800
82,800 Halliburton Co. 2,467,440
133,200 King Pharmaceuticals, Inc. (NON) 2,297,700
146,000 Masco Corp. 4,089,460
--------------
Total Common stocks
(cost $20,418,476) $21,078,065
Corporate bonds and notes (0.9%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$1,429,166 Peregrine Systems, Inc. 144A sr.
notes 6 1/2s, 2007 $1,375,573
4,000,000 Tyco International Group SA company
guaranty Ser. A, 2 3/4s, 2018
(Luxembourg) 5,235,000
--------------
Total Corporate bonds and notes
(cost $5,482,533) $6,610,573
Short-term investments (2.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$8,015,618 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.02% to 1.21% and due dates ranging
from May 3, 2004 to June 11, 2004
(d) $8,012,413
7,443,481 Short-term investments held in
Putnam commingled cash account with
yields ranging from 1.03% to 1.05%
and due dates ranging from May 3,
2004 to May 21, 2004 (d) 7,443,481
--------------
Total Short-term investments
(cost $15,455,894) $15,455,894
- -------------------------------------------------------------------------------
Total Investments
(cost $701,348,757) $769,302,867
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $760,841,086.
(NON) Non-income-producing security.
(STP) The interest rate and date shown parenthetically represent the new
interest rate to be paid and the date the fund will begin accruing
interest income at this rate.
(d) See Note 1 to the financial statements.
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.
The rates shown on Floating Rate Notes (FRN) are the current interest
rates shown at April 30, 2004.
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
April 30, 2004 (Unaudited)
Assets
- -------------------------------------------------------------------------------
Investments in securities, at value, including $7,759,939 of
securities on loan (identified cost $701,348,757) (Note 1) $769,302,867
- -------------------------------------------------------------------------------
Cash 144,123
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 4,122,454
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 520,995
- -------------------------------------------------------------------------------
Receivable for securities sold 8,366,457
- -------------------------------------------------------------------------------
Total assets 782,456,896
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 1,919,925
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,930,009
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 1,196,431
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 147,702
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 107,408
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 1,231
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 237,279
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 8,012,413
- -------------------------------------------------------------------------------
Other accrued expenses 63,412
- -------------------------------------------------------------------------------
Total liabilities 21,615,810
- -------------------------------------------------------------------------------
Net assets $760,841,086
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $930,340,642
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 10,697,880
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (248,151,546)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 67,954,110
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $760,841,086
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($600,947,266 divided by 36,307,173 shares) $16.55
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $16.55)* $17.47
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($113,090,698 divided by 6,940,571 shares)** $16.29
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($9,505,420 divided by 577,442 shares)** $16.46
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($7,552,744 divided by 459,727 shares) $16.43
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.43)* $17.03
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($1,065 divided by 64 shares) $16.55
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($29,743,893 divided by 1,796,678 shares) $16.55
- -------------------------------------------------------------------------------
* 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, 2004 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------
Dividends $10,552,336
- -------------------------------------------------------------------------------
Interest 5,810,210
- -------------------------------------------------------------------------------
Securities lending 19,579
- -------------------------------------------------------------------------------
Total investment income 16,382,125
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 2,417,391
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 765,704
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 13,193
- -------------------------------------------------------------------------------
Administrative services (Note 2) 6,788
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 774,158
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 598,562
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 41,065
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 29,859
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 2
- -------------------------------------------------------------------------------
Other 112,685
- -------------------------------------------------------------------------------
Non-recurring costs (Note 5) 16,421
- -------------------------------------------------------------------------------
Costs assumed by Manager (Note 5) (16,421)
- -------------------------------------------------------------------------------
Total expenses 4,759,407
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (67,559)
- -------------------------------------------------------------------------------
Net expenses 4,691,848
- -------------------------------------------------------------------------------
Net investment income 11,690,277
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 59,719,996
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,037
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the period (1,068)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the period (4,546,516)
- -------------------------------------------------------------------------------
Net gain on investments 55,174,449
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $66,864,726
- -------------------------------------------------------------------------------
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
Increase (decrease) in net assets 2004* 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $11,690,277 $31,252,651
- -------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 59,722,033 15,251,156
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (4,547,584) 156,857,774
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 66,864,726 203,361,581
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (10,424,835) (24,766,118)
- -------------------------------------------------------------------------------
Class B (1,586,164) (4,055,772)
- -------------------------------------------------------------------------------
Class C (109,644) (186,649)
- -------------------------------------------------------------------------------
Class M (112,879) (312,745)
- -------------------------------------------------------------------------------
Class R (17) --
- -------------------------------------------------------------------------------
Class Y (656,617) (1,708,013)
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (125,018,724) (36,715,203)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (71,044,154) 135,617,081
Net assets
- -------------------------------------------------------------------------------
Beginning of period 831,885,240 696,268,159
- -------------------------------------------------------------------------------
End of period (including undistributed net
investment income of $10,697,880 and
$11,897,759, respectively) $760,841,086 $831,885,240
- -------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.62 $20.26 $20.04
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .25 .58 .63 (d) .75 .76 .75
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.12 3.14 (1.01) (d) (4.27) .30 2.30
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.37 3.72 (.38) (3.52) 1.06 3.05
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.28) (.58) (.62) (.62) (.77) (.81)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93) (2.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.28) (.58) (.62) (1.78) (2.70) (2.83)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.55 $15.46 $12.32 $13.32 $18.62 $20.26
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.89* 30.79 (3.20) (19.85) 5.16 16.42
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $600,947 $645,260 $542,156 $657,937 $933,703 $982,956
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .54* 1.07 1.08 1.01 .97 .98
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.53* 4.20 4.63 (d) 4.86 3.86 3.73
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90* 93.66 116.36 207.64 176.66 54.74
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) As required, effective November 1, 2001, the fund adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on its fixed-income securities.
The effects from this change for the year ended October 31, 2002 were a
decrease to net investment income per share of $0.02, a decrease to net
realized and unrealized losses per share of $0.02 and a decrease to the
ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods
prior to November 1, 2001 have not been restated to reflect this change
in presentation.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.22 $12.14 $13.13 $18.37 $20.02 $19.83
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 .47 .52 (d) .63 .61 .60
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.10 3.09 (.99) (d) (4.21) .29 2.27
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.29 3.56 (.47) (3.58) .90 2.87
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.48) (.52) (.50) (.62) (.66)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93) (2.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.48) (.52) (1.66) (2.55) (2.68)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.29 $15.22 $12.14 $13.13 $18.37 $20.02
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.48* 29.82 (3.91) (20.46) 4.38 15.58
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $113,091 $129,317 $106,343 $143,286 $235,897 $291,017
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .92* 1.82 1.83 1.76 1.72 1.73
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.16* 3.45 3.88 (d) 4.09 3.11 2.99
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90* 93.66 116.36 207.64 176.66 54.74
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) As required, effective November 1, 2001, the fund adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on its fixed-income securities.
The effects from this change for the year ended October 31, 2002 were a
decrease to net investment income per share of $0.02, a decrease to net
realized and unrealized losses per share of $0.02 and a decrease to the
ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods
prior to November 1, 2001 have not been restated to reflect this change
in presentation.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -----------------------------------------------------------------------------------------------------------------------------------
For the
Six months period ended
ended July 26,
April 30 1999+ to
Per-share (Unaudited) Year ended October 31 October 31
operating performance 2004 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.38 $12.27 $13.26 $18.55 $20.23 $20.85
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19 .47 .52 (d) .64 .61 .20
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.11 3.13 (.99) (d) (4.27) .31 (.59)
- -----------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.30 3.60 (.47) (3.63) .92 (.39)
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.22) (.49) (.52) (.50) (.67) (.23)
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.22) (.49) (.52) (1.66) (2.60) (.23)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.46 $15.38 $12.27 $13.26 $18.55 $20.23
- -----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.50* 29.79 (3.87) (20.51) 4.45 (1.87)*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $9,505 $7,178 $3,999 $4,825 $5,545 $661
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .92* 1.82 1.83 1.76 1.72 .47*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.15* 3.34 3.87 (d) 4.12 3.17 1.12*
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90* 93.66 116.36 207.64 176.66 54.74
- -----------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Commencement of operations.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) As required, effective November 1, 2001, the fund adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on its fixed-income securities.
The effects from this change for the year ended October 31, 2002 were a
decrease to net investment income per share of $0.02, a decrease to net
realized and unrealized losses per share of $0.02 and a decrease to the
ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods
prior to November 1, 2001 have not been restated to reflect this change
in presentation.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- ---------------------------------------------------------------------------------------------------------------------------------
Six months
ended
April 30
Per-share (Unaudited) Year ended October 31
operating performance 2004 2003 2002 2001 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.35 $12.24 $13.23 $18.50 $20.13 $19.92
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .21 .51 .56 (d) .67 .66 .65
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.11 3.12 (1.00) (d) (4.24) .31 2.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.32 3.63 (.44) (3.57) .97 2.93
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.24) (.52) (.55) (.54) (.67) (.70)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93) (2.02)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.24) (.52) (.55) (1.70) (2.60) (2.72)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.43 $15.35 $12.24 $13.23 $18.50 $20.13
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 8.60* 30.14 (3.65) (20.27) 4.73 15.87
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $7,553 $9,248 $6,861 $9,345 $15,370 $16,338
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .79* 1.57 1.58 1.51 1.47 1.48
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.29* 3.65 4.13 (d) 4.34 3.36 3.23
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90* 93.66 116.36 207.64 176.66 54.74
- ---------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) As required, effective November 1, 2001, the fund adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on its fixed-income securities.
The effects from this change for the year ended October 31, 2002 were a
decrease to net investment income per share of $0.02, a decrease to net
realized and unrealized losses per share of $0.02 and a decrease to the
ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods
prior to November 1, 2001 have not been restated to reflect this change
in presentation.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS R
- ---------------------------------------------------------------------------------------------------------------------------------
For the
period
Dec. 1, 2003+
to April 30
Per-share (Unaudited)
operating performance 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.79
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .19
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .84
- ---------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.03
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.27)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 6.55*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .56*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.18*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90*
- ---------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -----------------------------------------------------------------------------------------------------------------------------------
For the
Six months period
ended Dec. 30,
April 30 1998+ to
Per-share (Unaudited) Year ended October 31 October 31
operating performance 2004 2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.63 $20.26 $19.32
- -----------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 .62 .66 (d) .79 .81 .72
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.13 3.13 (1.00) (d) (4.28) .31 .98
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.39 3.75 (.34) (3.49) 1.12 1.70
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.61) (.66) (.66) (.82) (.76)
- -----------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93) --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (.30) (.61) (.66) (1.82) (2.75) (.76)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.55 $15.46 $12.32 $13.32 $18.63 $20.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.03* 31.11 (2.96) (19.68) 5.49 8.87*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $29,744 $40,883 $36,910 $45,561 $59,214 $63,425
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .42* .82 .83 .76 .72 .61*
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.67* 4.46 4.87 (d) 5.12 4.11 3.43*
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 30.90* 93.66 116.36 207.64 176.66 54.74
- -----------------------------------------------------------------------------------------------------------------------------------
* Not annualized.
+ Commencement of operations.
(a) Per share net investment income has been determined on the basis of
the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(c) Includes amounts paid through expense offset and brokerage service
arrangements (Note 2).
(d) As required, effective November 1, 2001, the fund adopted the
provisions of the AICPA Audit and Accounting Guide, Audits of Investment
Companies, and began amortizing premium on its fixed-income securities.
The effects from this change for the year ended October 31, 2002 were a
decrease to net investment income per share of $0.02, a decrease to net
realized and unrealized losses per share of $0.02 and a decrease to the
ratio of net investment income to average net assets of 0.13%. The above
per share information, ratios, and supplemental data for the periods
prior to November 1, 2001 have not been restated to reflect this change
in presentation.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
April 30, 2004 (Unaudited)
Note I
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 to provide, with
equal emphasis, 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 invests in
higher yielding, lower rated bonds that have a higher rate of default
due to the nature of the investments.
The fund offers class A, class B, class C, class M, class R and class Y
shares. The fund began offering class R shares on December 1, 2003.
Class A shares are sold with a maximum front-end sales charge of 5.25%.
Prior to January 28, 2004, the maximum front-end sales charge for class
A shares was 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, class M and class R
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 and class R shares but lower than class
B and class C shares. Class R shares are sold without a front-end sales
charge and pay an ongoing distribution fee that is higher than class A
shares, but lower than class B, class C and class M shares. Class R
shares are offered to qualified employee-benefit plans. Class Y shares,
which are sold at net asset value, are generally subject to the same
expenses as class A, class B, class C, class M and class R shares, but
do not bear a distribution fee. Class Y shares are sold to certain
eligible purchasers including certain defined contribution plans
(including corporate IRAs), bank trust departments and trust companies.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchanging into another fund)
within 5 days of purchase.
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 accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in 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 valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Market quotations are not considered to be readily available for certain
debt obligations; such investments are valued at fair value on the basis
of valuations furnished by an independent pricing service or dealers,
approved by the Trustees. Such services or dealers determine valuations
for normal institutional-size trading units of such securities using
methods based on market transactions for comparable securities and
various relationships, generally recognized by institutional traders,
between securities. Many securities markets and exchanges outside the
U.S. close prior to the close of the New York Stock Exchange and
therefore the closing prices for securities in such markets or on such
exchanges may not fully reflect events that occur after such close but
before the close of the New York Stock Exchange. Accordingly, on certain
days, the fund will fair value foreign securities taking into account
multiple factors, including movements in the U.S. securities markets.
The number of days on which fair value prices will be used will depend
on market activity and it is possible that fair value prices will be
used by the fund to a significant extent. Short-term investments having
remaining maturities of 60 days or less are valued at amortized cost,
which approximates fair value. Other investments, including restricted
securities, are valued at fair value following procedures approved by
the Trustees. Such valuations and procedures are reviewed periodically
by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrangements,
into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam
Investment Management, LLC ("Putnam Management"), the fund's manager, an
indirect wholly-owned subsidiary of Putnam, LLC. These balances may be
invested in issuers of high-grade short-term investments having
maturities of up to 397 days for collateral received under security
lending arrangements and up to 90 days for other cash investments.
C) Security transactions and related investment income Security
transactions are recorded 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, net
of applicable withholding taxes, is recognized on the ex-dividend date
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of the ex-dividend date. Non-cash
dividends, if any, are recorded at the fair market value of the
securities received. All premiums/discounts are amortized/accreted on a
yield-to-maturity basis.
D) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities,
currency holdings, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when earned or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
exchange gains or losses on closed forward currency contracts,
disposition of foreign currencies, currency gains and losses realized
between the trade and settlement dates on securities transactions and
the difference between the amount of investment income and foreign
withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized
appreciation and depreciation of assets and liabilities in foreign
currencies arise from changes in the value of open forward currency
contracts and assets and liabilities other than investments at the
period end, resulting from changes in the exchange rate. Investments in
foreign securities involve certain risks, including those related to
economic instability, unfavorable political developments, and currency
fluctuations, not present with domestic investments.
E) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At April 30, 2004, the value of
securities loaned amounted to $7,759,939. The fund received cash
collateral of $8,012,413 which is pooled with collateral of other Putnam
funds into 27 issuers of high grade short-term investments.
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 (the "Code"), 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.
At October 31, 2003, the fund had a capital loss carryover of
$307,468,677 available to the extent allowed by the Code to offset
future net capital gain, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- ---------------------------------
$220,741,661 October 31, 2009
86,727,016 October 31, 2010
The aggregate identified cost on a tax basis is $701,753,659, resulting
in gross unrealized appreciation and depreciation of $82,774,631 and
$15,225,423, respectively, or net unrealized appreciation of
$67,549,208.
G) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, 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. 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
Putnam Management is paid for management and investment advisory
services 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.
Effective January 28, 2004, Putnam Management has agreed to limit its
compensation (and, to the extent necessary, bear other expenses) through
December 31, 2004, to the extent that the fund's net expenses as a
percentage of average net assets exceed the average expense ratio for
the fund's Lipper peer group of front-end load funds.
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, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the six months ended April 30, 2004, the
fund paid PFTC $572,280 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended April 30, 2004,
the fund's expenses were reduced by $67,559 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $1,192, as a quarterly retainer, has been allocated to the fund,
and an additional fee for each Trustees 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 Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses 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, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended April 30, 2004, Putnam Retail Management,
acting as underwriter, received net commissions of $20,086 and $842 from
the sale of class A and class M shares, respectively, and received
$156,575 and $1,624 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively.
A deferred sales charge of up to 1.00% and 0.65% is assessed on certain
redemptions of class A and class M shares, respectively. For the six
months ended April 30, 2004, Putnam Retail Management, acting as
underwriter, received $777 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2004, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $246,889,318 and $365,746,405, respectively.
There were no purchases or sales of U.S. government securities.
Note 4
Capital shares
At April 30, 2004, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 2,708,839 $44,444,392
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 551,761 8,982,720
- ----------------------------------------------------------------
3,260,600 53,427,112
Shares repurchased (8,685,383) (139,719,723)
- ----------------------------------------------------------------
Net decrease (5,424,783) $(86,292,611)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 5,350,399 $73,954,040
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,544,185 21,514,758
- ----------------------------------------------------------------
6,894,584 95,468,798
Shares repurchased (9,158,447) (126,855,853)
- ----------------------------------------------------------------
Net decrease (2,263,863) $(31,387,055)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 965,673 $15,583,272
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 79,273 1,270,223
- ----------------------------------------------------------------
1,044,946 16,853,495
Shares repurchased (2,599,203) (41,415,276)
- ----------------------------------------------------------------
Net decrease (1,554,257) $(24,561,781)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 2,302,284 $31,754,512
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 237,299 3,261,276
- ----------------------------------------------------------------
2,539,583 35,015,788
Shares repurchased (2,801,412) (38,074,991)
- ----------------------------------------------------------------
Net decrease (261,829) $(3,059,203)
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 194,443 $3,222,806
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 4,911 79,569
- ----------------------------------------------------------------
199,354 3,302,375
Shares repurchased (88,517) (1,431,464)
- ----------------------------------------------------------------
Net increase 110,837 $1,870,911
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 312,815 $4,408,092
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 11,656 163,508
- ----------------------------------------------------------------
324,471 4,571,600
Shares repurchased (183,738) (2,578,881)
- ----------------------------------------------------------------
Net increase 140,733 $1,992,719
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 43,102 $703,731
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 5,894 95,261
- ----------------------------------------------------------------
48,996 798,992
Shares repurchased (191,925) (3,052,136)
- ----------------------------------------------------------------
Net decrease (142,929) $(2,253,144)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 278,686 $3,902,993
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 19,306 268,930
- ----------------------------------------------------------------
297,992 4,171,923
Shares repurchased (255,952) (3,582,916)
- ----------------------------------------------------------------
Net increase 42,040 $589,007
- ----------------------------------------------------------------
For the period December 1, 2003
(commencement of operations)
to April 30, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 62 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 2 17
- ----------------------------------------------------------------
64 1,017
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 64 $1,017
- ----------------------------------------------------------------
Six months ended April 30, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 168,660 $2,773,436
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 40,411 656,617
- ----------------------------------------------------------------
209,071 3,430,053
Shares repurchased (1,056,091) (17,213,169)
- ----------------------------------------------------------------
Net decrease (847,020) $(13,783,116)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 231,781 $3,208,229
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 122,842 1,708,013
- ----------------------------------------------------------------
354,623 4,916,242
Shares repurchased (705,938) (9,766,913)
- ----------------------------------------------------------------
Net decrease (351,315) $(4,850,671)
- ----------------------------------------------------------------
At April 30, 2004, Putnam, LLC owned 64 class R shares of the fund (100%
of class R shares outstanding), valued at $1,065.
Note 5
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission and the Massachusetts Securities
Division representing a final settlement of all charges brought against
Putnam Management by those agencies on October 28, 2003 in connection
with excessive short-term trading by Putnam employees and, in the case
of the charges brought by the Massachusetts Securities Division, by
participants in some Putnam-administered 401(k) plans. The settlement
with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securi ties Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
For the period ended April 30, 2004, Putnam Management has assumed
$16,421 of legal, shareholder servicing and communication, audit, and
Trustee fees incurred by the Fund in connection with these matters.
Review of these matters by counsel for Putnam Management and by separate
independent counsel for the Putnam funds and their independent Trustees
is continuing. The fund may experience increased redemptions as a result
of these matters, which could result in increased transaction costs and
operating expenses.
Putnam puts your interests first
In January, Putnam announced a number of voluntary initiatives designed
to reduce fund expenses, provide investors with more useful information,
and help safeguard the interests of all Putnam investors. For details,
visit www.putnaminvestments.com.
Cost-cutting initiatives
Reduced sales charges
Effective immediately, the maximum sales charge for class A shares has
been reduced to 5.25% for equity funds (formerly 5.75%) and 4.50% for
most income funds (formerly 4.75%).*
Lower class B purchase limit
To help ensure that investors are in the most cost-effective share
class, the maximum amount that can be invested in class B shares has
been reduced to $100,000. (Larger trades or accumulated amounts will be
directed to class A shares.)
Ongoing expenses will be limited
During calendar 2004, total ongoing expenses, including management fees
for all funds, will be maintained at or below the average of each fund's
industry peers in its Lipper load-fund universe. For more information,
please see the Statement of Additional information.
Additional measures are being taken to reduce expenses for shareholders
in the six global and international funds that had short-term trading
issues.
Improved disclosure
Putnam fund prospectuses and shareholder reports are being revised to
disclose additional information that will help shareholders compare
funds and weigh their costs and risks along with their potential
benefits. Shareholders will find easy-to-understand information about
fund expense ratios, portfolio manager compensation, risk comparisons,
brokerage commissions, and employee and trustee ownership of Putnam
funds. Disclosure of breakpoint discounts is also being enhanced to
alert investors to potential cost savings.
Protecting investors' interests
New short-term trading fee introduced
To discourage short-term trading, which can interfere with a fund's
long-term strategy, a 2% short-term trading fee will be imposed on any
Putnam fund shares redeemed or exchanged within five calendar days of
purchase.
* The maximum sales charge for class A shares of Putnam U.S. Intermediate
Government Income Fund remains 3.25%.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Patricia C. Flaherty
Senior Vice President
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Beth S. Mazor
Vice President
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Judith Cohen
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, the most recent copy
of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site
www.putnaminvestments.com.
SA019-214216 008/223/2ND/920/2LG 6/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Convertible Income-Growth Trust
Supplement to Semiannual Report dated 4/30/04
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 clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a front-end
load, a distribution fee, or a contingent deferred sales charge, will
differ from the performance of class A, B, C, M, and R shares, which are
discussed more extensively in the semiannual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 4/30/04
NAV
6 months 9.03%
1 year 25.85
5 years 18.60
Annual average 3.47
10 years 135.08
Annual average 8.92
Life of fund (since class A inception, 6/29/72)
Annual average 11.03
Share value: NAV
10/31/03 $15.46
4/30/04 $16.55
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.300 -- $0.300
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not 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, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. 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.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- ---------------------------------
(a) The registrant's principal executive officer and principal financial
officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
Although such officers reached the conclusion expressed in the
preceding paragraph, they are aware of matters that raise concerns
with respect to controls, each of which arose in connection with the
administration of 401(k) plans by Putnam Fiduciary Trust Company.
The first matter, which occurred in early 2001, involved the willful
circumvention of controls by certain Putnam employees in connection
with the correction of operational errors with respect to a 401(k)
client's investment in certain Putnam Funds, which led to losses in
five Putnam Funds (not including the registrant). Such officers
became aware of this matter in February 2004. The second matter,
which occurred in 2002, involved the willful circumvention by
certain Putnam employees of policies and procedures in connection
with the payment of Putnam corporate expenses. Such officers did
not learn that this matter involved a Putnam Fund until January
2004. Putnam has made restitution to the affected Funds,
implemented a number of personnel changes, including senior
personnel, begun to implement changes in procedures to address these
items and informed the SEC, the Funds' Trustees and independent
auditors. An internal investigation and review of procedures and
controls are currently ongoing.
In reaching the conclusion expressed herein, the registrant's
principal executive officer and principal financial officer
considered a number of factors, including the nature of the matters
described above, when the matters occurred, the individuals
involved, personnel changes that have occurred since these matters
occurred, the results to date of the current ongoing investigation
and the overall quality of controls at Putnam at this time.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 28, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: June 28, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 28, 2004