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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. For example, in the spring of this year we
began showing expense and risk comparisons in shareholder reports. We
are now including in this report portfolio turnover information for your
fund, which explains how the rate at which a fund buys and sells
portfolio securities might affect its return and its taxable
distributions to shareholders. We are also including additional
disclosure about your fund's management team. Following the Outlook for
Your Fund, we list any changes in your fund's Portfolio Leader and
Portfolio Members during the prior year period, the current Portfolio
Leader's and Portfolio Members' other fund management responsibilities
at Putnam, and the dollar range of fund shares owned by these
individuals. Equity fund reports, furthermore, now also list the largest
brokerage relationships of your fund following the Notes to the
Financial Statements.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, Putnam Convertible
Income-Growth Trust delivered strong results. In the following pages,
the fund managers discuss fund performance, strategy, and their outlook
for fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 15, 2004
Report from Fund Management
Fund highlights
* For the fiscal year ended October 31, 2004, Putnam Convertible
Income-Growth Trust's class A shares returned 10.92% without sales
charges and 4.57% with maximum sales charges reflected.
* The fund's benchmark, the Goldman Sachs Convertible 100 Index,
returned 6.96%.
* The average return for the fund's Lipper category, Convertible
Securities Funds, was 7.08%.
* The fund received the 2004 Lipper Fund Award for Consistent Return in
the convertible securities category. For more information, see page 5.
* The fund changed its dividend payout in March and September 2004. For
more information, see page 5.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
We are pleased to report that your fund generated solid absolute returns
and strong competitive performance during the annual period. Based on
returns at net asset value (NAV), the fund outpaced its benchmark by
3.96%, and its Lipper category by 3.84%. We attribute the fund's
outperformance to successful security selection that included
strong-performing issues not in the fund's benchmark,
higher-than-benchmark equity sensitivity, and a slightly
larger-than-benchmark exposure to energy securities. Furthermore, the
fund was fully invested, which, in our view, remains the best way to
take advantage of the market's opportunities. Putnam's in-depth
securities research enhanced our ability to make wise, effective
investment decisions on a daily basis.
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TOTAL RETURN FOR
PERIODS ENDED 10/31/04
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Class A
(inception 6/29/72) NAV POP
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1 year 10.92% 4.57%
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5 years 18.38 11.55
Annual average 3.43 2.21
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10 years 127.28 114.26
Annual average 8.56 7.92
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Annual average
(life of fund) 10.87 10.67
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Data is historical. 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. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 5.75%. For the most recent month-end
performance, visit www.putnaminvestments.com. A 2% short-term trading
fee may be applied to shares exchanged or sold within 5 days of
purchase.
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
The beginning of the fund's fiscal year was characterized by strong
investor confidence and double-digit equity gains, which gave way, in
early 2004, to increased volatility and concern over rising interest
rates. The convertibles market echoed the stock market's movement,
peaking at the end of calendar 2003, and then settling into a holding
pattern. Credit spreads, that is, the difference in yield between
lower-quality and higher-quality bonds, had initially narrowed, boosting
the value of convertibles. During the second half of the fiscal year,
though, spreads ceased to narrow further, and remained about flat
through year-end.
In May, both the stock and bond markets experienced corrections, in
anticipation of Federal Reserve Board (Fed) rate hikes, which did
commence June 30. Thereafter, most securities traded within a narrow
range, reflecting investors' uncertainty about the outcome of the
presidential election, record-high energy prices, and the prospects of
continued Fed tightening. Not surprisingly, the Fed again raised
short-term interest rates in August and September, and indicated its
willingness to tighten further. In an environment of rising rates, new
issuance of convertible securities slowed considerably. Thus, the
convertibles market in the second half of the fiscal year was less
dynamic and we found fewer opportunities to pursue. We exercised caution
to preserve the fund's gains from preceding months, and we believe the
fund's competitive performance was reasonable.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04
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Equities
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Goldman Sachs Convertible 100 Index (convertible securities) 6.96%
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S&P 500 Index (broad stock market) 9.42%
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Russell 2000 Growth Index (small-company growth stocks) 5.53%
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MSCI World Ex-U.S. Index (international stocks) 19.25%
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Bonds
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Citigroup World Government Bond Index (global government
bonds) 10.72%
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Lehman Government Bond Index (U.S. Treasury and agency
securities) 4.83%
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JP Morgan Global High Yield Index (global high-yield
corporate bonds) 12.92%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/04.
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Strategy overview
Over the course of the year, market conditions for convertible investing
went from quite favorable to rather benign. Throughout the market's
transition, we maintained a strategy of pursuing excess returns by
investing in the most promising securities -- several of which were not
in the fund's benchmark. We also positioned the fund to have a high
level of equity sensitivity, based on our belief that stocks could do
well under current economic and market conditions. As usual, we avoided
positions in zero-yielding convertibles, which pay zero interest and
also trade at par, thus offering no appreciation potential. Such bonds
do not support the fund's income and growth objectives. We tended to
invest in larger, stronger companies, but this was not a significant
contributor to returns during the period, as issues from
smaller-capitalization companies performed as well as larger-cap issues.
Relative to its benchmark, the fund had an overweighted exposure to the
energy sector, which boosted the fund's returns. In recent months,
energy was the standout sector in terms of performance. Our convertible
holdings included securities of energy companies as well as
energy-related utility companies.
[GRAPHIC OMITTED: horizontal bar chart TOP SECTOR WEIGHTINGS COMPARED]
TOP SECTOR WEIGHTINGS COMPARED
as of 4/30/04 as of 10/31/04
Financial 15.4% 15.7%
Technology 14.2% 15.1%
Consumer cyclicals 20.4% 14.4%
Health care 12.7% 14.2%
Utilities and power 9.7% 10.0%
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
Long-term holdings Tyco International and Xerox remained among the
portfolio's largest positions as of the end of the period. You may
recall that we waited patiently for Tyco, a Bermuda-based conglomerate,
to recover from its accounting and management issues. Under new
management, the company has shored up its balance sheet, streamlined its
businesses, and turned its attention to improving profitability. Tyco's
turnaround has been quite successful, and as a result, the fund has
benefited significantly from its position. Xerox convertibles
strengthened a lot in the fiscal year, as did the underlying common
stock. We traded away some of the convertibles, which were to have been
called, or redeemed early, and we purchased others, in order to maintain
a substantial exposure. We believe these securities continue to offer
the potential for attractive total return. The fund's position in
Anixter International, which we established prior to the fiscal year,
performed notably well this year. Anixter distributes thousands of
connectivity products for wire-based communications systems, as well as
industrial fasteners. Strong demand for these products boosted the value
of the common shares, and the convertible bonds gained in equity
sensitivity. Accordingly, their effect on the portfolio was quite
positive.
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TOP HOLDINGS
(Percent of fund's net assets as of 10/31/04)
1 Northrop Grumman Corp. (3.2%)
Ser. B, $7.00 cum. cv. pfd.
Aerospace and defense
2 State Street Corp. (2.1%)
6.75% cv. pfd.
Banking
3 Schering-Plough Corp. (2.0%)
$3.00 cv. pfd.
Pharmaceuticals
4 Masco Corp. (1.9%)
cv. sr. notes zero %, 2031
Building materials
5 Service Corporation International (1.8%)
Common stock
Commercial and consumer services
6 Providian Financial Corp. (1.8%)
cv. notes 4%, 2008
Consumer finance
7 Amerada Hess Corp. (1.8%)
$3.50 cv. pfd.
Oil and gas
8 Tyco International Group SA (1.7%)
144A cv. company guaranty Ser. A., 2.75%, 2018 (Luxembourg)
Conglomerates
9 Vishay Intertechnology, Inc. (1.6%)
144A cv. sub. notes 3.625%, 2023
Electronics
10 Baxter International, Inc. (1.6%)
$3.50 cv. pfd.
Medical technology
Footnote reads:
The fund's holdings will change over time.
We mentioned earlier that energy and energy-related holdings contributed
positively to returns, as prices for energy achieved record-high levels.
Amerada Hess, based in New York City, is an integrated oil company with
global operations. It discovers, refines, and distributes petroleum
products, and has over 1,000 retail outlets in the eastern United States.
It was one of the best performers among the fund's energy holdings.
Halliburton, Chesapeake Energy, Arch Coal, and Massey Energy Company,
though among the fund's smaller positions, also helped boost returns.
Sierra Pacific Resources owns Nevada Power Company, a smaller-cap
regulated electric utility company that suffered in tandem with other
utilities in California's energy crisis. With the help of Nevada's
regulatory body, the company is getting its house back in order. Sierra
Pacific's common stock has nearly tripled since the company issued its
most recent convertible offering. The convertible, which the fund owns,
has also performed well.
In the midst of these positives, there were a few disappointments for
the fund. It was not invested in, and therefore did not participate in,
the successful turnaround of Texas Utilities. Also, the fund's position
in State Street Bank convertibles had negative performance during the
period. We like the company's new management and its future prospects,
so we have maintained a fairly large position. Conditions in the mar ket
place did not seem to support our continued holding of Primus
Telecommunication convertibles, so we sold the fund's position.
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
Putnam Convertible Income-Growth Trust received the 2004 Lipper Fund
Award for Consistent Return in the convertible securities category.
Lipper presents the award annually to the one fund in each Lipper
classification that achieved the highest Consistent Return score. A
fund's Consistent Return score measures its risk-adjusted returns,
relative to peers, for the 1-year period ended December 31, 2003. The
fund was chosen from among 59 convertible securities funds. Lipper Fund
Awards are not intended to predict future results, and Lipper does not
guarantee the accuracy of this information. Lipper is a leading global
mutual fund research firm.
Putnam Convertible Income-Growth Trust changed its quarterly dividend
payout twice during the fiscal year ended October 31, 2004. In March
2004, the quarterly dividend on class A shares was reduced 18.8%, from
$0.154 to $0.125. Dividends on other share classes had a similar
decrease. Given the strong recovery of the convertible sector, terms of
new issuance were less favorable and it was difficult to find
attractive, high-yielding issues. In September 2004, the quarterly
dividend on class A shares increased from $0.125 to $0.132 per share, an
increase of 5.60%. Dividends for other share classes had a similar
increase. This change reflects the fund's increased allocation to
mandatory convertible securities. Certain individual securities offered
higher yields in a period of low new issuance.
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.
Our outlook for the months ahead is fairly optimistic. The stock market
has reacted positively to the outcome of the presidential election, and
we think that has as much to do with the decisiveness of the election as
with the continuity in the highest office. The price of oil has receded
from its high point, and while there are several reasons why we believe
oil may remain overvalued in the short term, we think it will eventually
fall back, and this will be a positive for stocks and convertible
securities. That said, we believe that two of the big drivers of
performance are not likely to be as influential as they have been since
2002. The credit spread, or the difference in yields between low- and
high-quality bonds, is already quite attractive, having narrowed earlier
in the year. We doubt it will narrow much further. When the spread
narrows, the yield on lower-quality debt falls and the price of
lower-quality bonds, including many convertible bonds, rises. The other
driver that affects convertibles is equity market performance. The
equity markets rose significantly in 2003, but given the slowing pace of
the economic recovery, we do not anticipate that gains in the near
future will be as robust.
Convertible bond issuance in recent months has been quite low. The
strategy of issuing debt simply to take advantage of low interest rates
seemed to halt as soon as rates started to rise. With the presidential
election out of the way and a perkier stock market, we have seen a mild
increase in issuance. We will evaluate these new issues in search of
opportunities that suit the fund's objectives.
We believe that convertible bonds represent one of the best fixed-income
investment alternatives over the coming 12 months, as their convertible
feature offers some upside potential in a period of rising interest
rates. The fund's equity sensitivity is designed to capture that
potential. We are optimistic that the fund may continue to deliver
attractive positive returns to help you meet your financial goals.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund invests
some or all of its assets in small and/or midsize companies. Such
investments increase the risk of greater price fluctuations. Lower-rated
bonds may offer higher yields in return for more risk. This fund may
have a significant portion of its holdings in bonds. Mutual funds that
invest in bonds are subject to certain risks, including interest-rate
risk, credit risk, and inflation risk. As interest rates rise, the
prices of bonds fall. Long-term bonds are more exposed to interest-rate
risk than short-term bonds. Unlike bonds, bond funds have ongoing fees
and expenses.
Your fund's management
Your fund is managed by the members of the Putnam Large-Cap Value Team.
David King is the Portfolio Leader of your fund. The Portfolio Leader
coordinates the team's management of the fund.
For a complete listing of the members of the Putnam Large-Cap Value
Team, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows fund ownership, in dollar ranges, by the fund's
current Portfolio Leader. Information shown is for the current and prior
year ended November 30.
FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001- $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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David King 2004 *
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Portfolio
Leader 2003 *
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Other funds managed by the Portfolio Leader
David King is also the Portfolio Leader of Putnam High Income Bond Fund,
Putnam High Income Opportunities Trust, and Putnam New Value Fund. He is
also a Portfolio Member of The Putnam Fund for Growth and Income.
David King may also manage other accounts advised by Putnam Management
or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
After the fund's fiscal year ended October 31, 2004, Portfolio Member
George Maris left your fund's management team.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended October 31, 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 10/31/04
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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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1 year 10.92% 4.57% 10.10% 5.10% 10.09% 9.09% 10.36% 6.47% 10.74%
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5 years 18.38 11.55 14.03 12.39 14.04 14.04 15.56 11.52 17.01
Annual average 3.43 2.21 2.66 2.36 2.66 2.66 2.93 2.20 3.19
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10 years 127.28 114.26 110.93 110.93 110.82 110.82 116.39 108.86 121.82
Annual average 8.56 7.92 7.75 7.75 7.74 7.74 8.02 7.64 8.29
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Annual average
(life of fund) 10.87 10.67 9.88 9.88 10.04 10.04 10.16 10.04 10.59
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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 may be applied to shares exchanged or sold within 5
days of purchase.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 10/31/94 to 10/31/04
Goldman Sachs
Fund's class A Convertible 100
Date shares at POP Index
10/31/94 9,425 10,000
10/31/95 10,783 11,680
10/31/96 12,830 13,537
10/31/97 15,763 16,577
10/31/98 15,547 16,340
10/31/99 18,100 19,592
10/31/00 19,035 23,363
10/31/01 15,257 19,200
10/31/02 14,768 17,272
10/31/03 19,316 21,749
10/31/04 $21,426 $23,263
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class
C shares would have been valued at $21,093 and $21,082, respectively,
and no contingent deferred sales charges would apply. A $10,000
investment in the fund's class M shares would have been valued at
$21,639 ($20,886 at public offering price). A $10,000 investment in
the fund's class R shares would have been valued at $22,182. See first
page of performance section for performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04
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Goldman Sachs Lipper Convertible
Convertible Securities Funds
100 Index category average*
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1 year 6.96% 7.08%
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5 years 18.73 27.45
Annual average 3.49 4.87
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10 years 132.63 141.99
Annual average 8.81 9.10
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Annual average
(life of fund) --+ 10.78
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 10/31/04, there were 73,
54, 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 12 MONTHS ENDED 10/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 4 4 4 4 4
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Income $0.536 $0.408 $0.423 $0.450 $0.509
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Capital gains -- -- -- -- --
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Total $0.536 $0.408 $0.423 $0.450 $0.509
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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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10/31/04 16.60 17.52* 16.34 16.50 16.48 17.08 16.60
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Current return
(end of period)
Current dividend rate 1 3.18% 3.01% 2.45% 2.52% 2.69% 2.60% 3.06%
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Current 30-day
SEC yield 2 2.61 2.47 1.87 1.87 2.12 2.04 2.38
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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 9/30/04 (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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1 year 14.95% 8.36% 14.07% 9.07% 14.02% 13.02% 14.31% 10.34% 14.68%
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5 years 21.24 14.26 16.77 15.10 16.81 16.81 18.31 14.17 19.81
Annual average 3.93 2.70 3.15 2.85 3.16 3.16 3.42 2.69 3.68
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10 years 125.42 112.41 109.30 109.30 109.11 109.11 114.50 106.94 119.91
Annual average 8.47 7.82 7.67 7.67 7.66 7.66 7.93 7.54 8.20
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Annual average
(life of fund) 10.88 10.67 9.89 9.89 10.04 10.04 10.17 10.05 10.60
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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 from May 1, 2004,
to October 31, 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 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.48 $9.27 $9.27 $8.01 $6.75
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Ending value (after
expenses) $1,018.70 $1,014.90 $1,014.60 $1,016.20 $1,017.60
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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
10/31/04. 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
October 31, 2004, use the calculation method below. To find the value
of your investment on May 1, 2004, go to www.putnaminvestments.com and
log on to your account. Click on the "Transaction History" tab in your
Daily Statement and enter 05/01/2004 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 5/1/04 [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 $5.48 (see table above) = $54.80
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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
10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $5.48 $9.27 $9.27 $8.01 $6.75
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Ending value (after
expenses) $1,019.71 $1,015.94 $1,015.94 $1,017.19 $1,018.45
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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
10/31/04. 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.
- ------------------------------------------------------------------------------
EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
- ------------------------------------------------------------------------------
Your fund's annualized
expense ratio+ 1.08% 1.83% 1.83% 1.58% 1.33%
- ------------------------------------------------------------------------------
Average annualized expense
ratio for Lipper peer
group++ 1.25% 2.00% 2.00% 1.75% 1.50%
- ------------------------------------------------------------------------------
+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Average of the expenses of front-end load funds viewed by Lipper as
having the same investment classification or objective as the fund, as
of 9/30/04, calculated in accordance with Lipper's standard reporting
methodology for comparing expenses within a given universe (excluding
12b-1 fees and without giving effect to any expense offset and
brokerage service arrangements that may reduce fund expenses). To
facilitate comparison, Putnam has adjusted this average to reflect the
12b-1 fees carried by each class 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.
Understanding your fund's
portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and
replaced securities valued at 100% of a fund's assets within a
one-year period. Funds with high turnover may be more likely to
generate capital gains and dividends that must be distributed to
shareholders as taxable income. High turnover may also cause a fund to
pay more brokerage commissions and other transaction costs, which may
detract from performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
Putnam Convertible
Income-Growth Trust 53% 94% 116% 208% 177%
- ------------------------------------------------------------------------------
Lipper Convertible
Securities Funds
category average 105% 97% 108% 130% 145%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's
fiscal-year period, which ends on October 31. Turnover data for the
fund's Lipper category is calculated based on the average of the
turnover of each fund in the category for its fiscal year ended during
the indicated year. Fiscal years vary across funds in the Lipper
category, which may limit the comparability of the fund's portfolio
turnover rate to the Lipper average. Comparative data for 2004 is
based on information available as of 9/30/04.
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 1.63
U.S. stock
fund average 3.57
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 September 30, 2004.
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. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
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.
JP Morgan 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.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
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 year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders
Putnam Convertible Income-Growth Trust:
We have audited the accompanying statement of assets and liabilities of
Putnam Convertible Income-Growth Trust, including the fund's portfolio,
as of October 31, 2004, and the related statement of operations for the
year then ended, the statements of changes in net assets for each of the
two years in the period then ended and the financial highlights for each
of the periods presented. These financial statements and financial
highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements
and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform our audit to obtain reasonable
assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included
confirmation of securities owned as of October 31, 2004 by
correspondence with the custodian and brokers or by other appropriate
auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Putnam Convertible Income-Growth Trust as of
October 31, 2004, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods
presented, in conformity with accounting principles generally accepted
in the United States of America.
/S/ KPMG LLP
Boston, Massachusetts
December 10, 2004
The fund's portfolio
October 31, 2004
Convertible bonds and notes (51.7%) (a)
Principal amount Value
Advertising and Marketing Services (1.9%)
- -------------------------------------------------------------------------------
$5,500,000 Interpublic Group Companies, Inc.
144A cv. notes 4 1/2s, 2023 $6,930,000
6,700,000 Lamar Advertising Co. cv. sr. notes
2 7/8s, 2010 7,219,250
--------------
14,149,250
Aerospace and Defense (0.6%)
- -------------------------------------------------------------------------------
3,800,000 United Industrial Corp./New York cv.
sr. notes 3 3/4s, 2024 4,165,750
Banking (0.4%)
- -------------------------------------------------------------------------------
3,600,000 Ocwen Financial Corp. 144A cv. sr.
notes 3 1/4s, 2024 3,370,500
Biotechnology (2.9%)
- -------------------------------------------------------------------------------
5,300,000 Amgen, Inc. cv. Liquid Yield Option
Notes (LYON) zero %, 2032 3,908,750
2,500,000 Amylin Pharmaceuticals, Inc. 144A
cv. sr. notes 2 1/2s, 2011 2,425,000
3,700,000 Amylin Pharmaceuticals, Inc. 144A
cv. sr. notes 2 1/4s, 2008 3,663,000
600,000 Celgene Corp. cv. sr. notes 1 3/4s,
2008 828,000
4,800,000 Celgene Corp. 144A cv. sr. notes
1 3/4s, 2008 6,624,000
5,350,000 MGI Pharma, Inc. 144A cv. sr. sub.
notes stepped-coupon 1.682s (zero
%, 3/2/11) 2024 (STP) 4,286,688
--------------
21,735,438
Building Materials (1.9%)
- -------------------------------------------------------------------------------
29,100,000 Masco Corp. cv. sr. notes zero %,
2031 13,895,250
Coal (0.5%)
- -------------------------------------------------------------------------------
3,200,000 Massey Energy Co. 144A cv. sr. notes
2 1/4s, 2024 3,520,000
Communications Equipment (2.5%)
- -------------------------------------------------------------------------------
13,500,000 Avaya, Inc. cv. LYON zero %, 2021 7,610,625
4,300,000 Comtech Telecommunications Corp.
144A cv. sr. notes stepped-coupon
2s (zero %, 2/1/11) 2024 (STP) 3,939,875
5,500,000 Lucent Technologies, Inc. cv. debs.
Ser. A, 2 3/4s, 2023 7,328,750
--------------
18,879,250
Computers (2.0%)
- -------------------------------------------------------------------------------
21,000,000 Anixter International, Inc. 144A cv.
LYON zero %, 2033 11,550,000
2,900,000 MSC Software Corp. 144A cv. notes
2 1/2s, 2008 3,244,375
--------------
14,794,375
Conglomerates (2.5%)
- -------------------------------------------------------------------------------
4,000,000 Tyco International Group SA cv.
company guaranty Ser. A, 2 3/4s,
2018 (Luxembourg) 5,645,000
8,900,000 Tyco International Group SA 144A cv.
company guaranty Ser. A, 2 3/4s,
2018 (Luxembourg) 12,560,125
--------------
18,205,125
Consumer Finance (1.8%)
- -------------------------------------------------------------------------------
10,100,000 Providian Financial Corp. cv. notes
4s, 2008 13,369,875
Electric Utilities (1.9%)
- -------------------------------------------------------------------------------
327,500 CenterPoint Energy, Inc. cv. sub
notes FRN 2s, 2029 11,135,000
1,325,000 Sierra Pacific Resources 144A cv.
notes 7 1/4s, 2010 3,064,063
--------------
14,199,063
Electronics (3.3%)
- -------------------------------------------------------------------------------
5,900,000 Micron Technology, Inc. cv. sr. sub.
notes 2 1/2s, 2010 7,087,375
1,300,000 Solectron Corp. cv. sr. notes 1/2s,
2034 1,106,625
4,000,000 Solectron Corp. 144A cv. sr. notes
1/2s, 2034 3,405,000
1,400,000 Vishay Intertechnology, Inc. cv.
sub. notes 3 5/8s, 2023 1,489,250
11,000,000 Vishay Intertechnology, Inc. 144A
cv. sub. notes 3 5/8s, 2023 11,701,250
--------------
24,789,500
Energy (1.1%)
- -------------------------------------------------------------------------------
7,100,000 Halliburton Co. cv. sr. notes
3 1/8s, 2023 8,520,000
Entertainment (1.5%)
- -------------------------------------------------------------------------------
8,700,000 Regal Entertainment Group 144A cv.
notes 3 3/4s, 2008 11,429,625
Food (1.1%)
- -------------------------------------------------------------------------------
3,775,000 General Mills, Inc. cv. debs. zero
%, 2022 2,637,781
7,400,000 General Mills, Inc. 144A cv. bonds
zero %, 2022 5,170,750
--------------
7,808,531
Health Care Services (3.2%)
- -------------------------------------------------------------------------------
3,800,000 Manor Care, Inc. cv. company
guaranty 2 5/8s, 2023 4,631,250
3,500,000 Manor Care, Inc. 144A cv. sr. notes
2 1/8s, 2023 4,265,625
3,500,000 Option Care, Inc. 144A cv. sr. notes
2 1/4s, 2024 3,521,875
3,500,000 Per-Se Technologies, Inc. 144A cv.
notes 3 1/4s, 2024 3,893,750
12,400,000 Universal Health Services, Inc. cv.
debs. 0.426s, 2020 7,052,500
--------------
23,365,000
Homebuilding (0.7%)
- -------------------------------------------------------------------------------
4,000,000 Fleetwood Enterprises, Inc. 144A cv.
sub. notes 5s, 2023 5,515,000
Investment Banking/Brokerage (0.9%)
- -------------------------------------------------------------------------------
2,900,000 Legg Mason, Inc. cv. LYON zero %,
2031 2,153,250
5,800,000 Legg Mason, Inc. 144A cv. LYON zero
%, 2031 4,306,500
--------------
6,459,750
Lodging/Tourism (1.1%)
- -------------------------------------------------------------------------------
7,500,000 Hilton Hotels Corp. 144A cv. notes
3 3/8s, 2023 8,437,500
Machinery (0.5%)
- -------------------------------------------------------------------------------
3,100,000 Kaydon Corp. 144A cv. notes 4s, 2023 3,661,875
Manufacturing (1.7%)
- -------------------------------------------------------------------------------
9,000,000 Roper Industries, Inc. cv. bonds
stepped-coupon 1.481s (zero %,
1/15/09) 2034 (STP) 4,286,250
7,930,000 Titan International, Inc. 144A cv.
sr. notes 5 1/4s, 2009 8,158,384
--------------
12,444,634
Media (1.5%)
- -------------------------------------------------------------------------------
12,100,000 Liberty Media Corp. cv. sr. notes
3 1/2s, 2031 11,026,125
Medical Technology (1.1%)
- -------------------------------------------------------------------------------
3,650,000 Cytyc Corp. 144A cv. sr. notes
2 1/4s, 2024 4,275,063
4,300,000 Epix Medical, Inc. 144A cv. sr.
notes 3s, 2024 3,714,125
--------------
7,989,188
Metals (0.6%)
- -------------------------------------------------------------------------------
4,600,000 Coeur D'alene Mines Corp. cv. sr.
notes 1 1/4s, 2024 4,329,750
Oil & Gas (0.5%)
- -------------------------------------------------------------------------------
3,000,000 McMoran Exploration Co. 144A cv.
notes 6s, 2008 3,772,500
Pharmaceuticals (2.7%)
- -------------------------------------------------------------------------------
800,000 Allergan, Inc. cv. sr. notes zero %,
2022 725,000
4,500,000 Allergan, Inc. 144A cv. sr. notes
zero %, 2022 4,078,125
11,600,000 Alza Corp. cv. sub. debs. zero %,
2020 9,309,000
6,000,000 King Pharmaceuticals, Inc. cv. debs.
FRN 2 3/4s, 2021 5,715,000
--------------
19,827,125
Restaurants (0.5%)
- -------------------------------------------------------------------------------
2,400,000 CKE Restaurants, Inc. 144A cv. sub.
notes 4s, 2023 3,762,000
Retail (3.7%)
- -------------------------------------------------------------------------------
5,500,000 Dick's Sporting Goods, Inc. 144A cv.
sr. notes stepped-coupon
1.606s (zero %, 2/18/09) 2024 (STP) 4,338,125
8,200,000 Lowe's Cos., Inc. cv. LYON zero %,
2021 7,626,000
7,510,000 Rite Aid Corp. cv. notes 4 3/4s,
2006 7,575,713
3,700,000 TJX Companies, Inc. (The) cv. LYON
zero %, 2021 3,158,875
5,200,000 TJX Companies, Inc. (The) 144A cv.
LYON zero %, 2021 4,439,500
--------------
27,138,213
Software (1.0%)
- -------------------------------------------------------------------------------
6,282,000 Computer Associates International,
Inc. 144A cv. sr. notes 5s, 2007 7,452,023
Technology Services (3.7%)
- -------------------------------------------------------------------------------
7,300,000 DST Systems, Inc. 144A cv. sr. notes
Ser. A, 4 1/8s, 2023 8,796,500
7,500,000 Fair, Isaac and Co., Inc. 144A cv.
notes 1 1/2s, 2023 7,462,500
3,000,000 Mercury Computer Systems, Inc. 144A
cv. sr. notes 2s, 2024 3,240,000
10,500,000 Safeguard Scientifics, Inc. 144A cv.
sr. notes 2 5/8s, 2024 7,573,120
--------------
27,072,120
Telecommunications (1.4%)
- -------------------------------------------------------------------------------
1,200,000 Leucadia National Corp. cv. sr. sub.
notes 3 3/4s, 2014 1,335,000
4,000,000 Leucadia National Corp. 144A cv. sr.
sub. notes 3 3/4s, 2014 4,450,000
4,000,000 NII Holdings, Inc. 144A cv. sr.
notes 2 7/8s, 2034 4,480,000
--------------
10,265,000
Textiles (0.5%)
- -------------------------------------------------------------------------------
4,000,000 Armor Holdings, Inc. cv. sr. sub.
notes stepped-coupon 2s (zero %,
11/1/11) 2024 (STP) 3,945,000
Tire & Rubber (0.5%)
- -------------------------------------------------------------------------------
3,212,000 Goodyear Tire & Rubber Co. (The)
144A cv. bonds 4s, 2034 3,493,050
--------------
Total Convertible bonds and notes
(cost $348,978,793) $382,787,385
Convertible preferred stocks (43.8%) (a)
Number of shares Value
Aerospace and Defense (3.2%)
- -------------------------------------------------------------------------------
181,500 Northrop Grumman Corp. Ser. B, $7.00
cum. cv. pfd. $23,436,188
Automotive (1.4%)
- -------------------------------------------------------------------------------
210,800 Ford Motor Company Capital Trust II
$3.25 cum. cv. pfd. 10,619,050
Banking (3.7%)
- -------------------------------------------------------------------------------
49,400 Commerce Capital Trust II $2.975
cum. cv. pfd. 3,081,325
75,950 State Street Corp. 6.75% cv. pfd. 15,797,600
154,900 Washington Mutual, Inc. units $2.688
cum. cv. pfd. 8,267,788
--------------
27,146,713
Beverage (1.0%)
- -------------------------------------------------------------------------------
224,100 Constellation Brands, Inc. Ser. A,
$1.438 cv. pfd. (S) 7,451,325
Broadcasting (1.1%)
- -------------------------------------------------------------------------------
37,200 Emmis Communications Corp. Ser. A,
$3.125 cum. cv. pfd. 1,571,700
160,200 Sinclair Broadcast Group, Inc.
Ser. D, $3.00 cv. pfd. 6,608,250
--------------
8,179,950
Building Materials (1.0%)
- -------------------------------------------------------------------------------
155,300 TXI Capital Trust I $2.75 cv. pfd. 7,318,513
Coal (0.5%)
- -------------------------------------------------------------------------------
40,600 Arch Coal, Inc. $2.50 cum. cv. pfd. 3,395,175
Combined Utilities (0.8%)
- -------------------------------------------------------------------------------
84,630 Williams Cos., Inc. (The) 144A $2.75
cv. pfd. 6,135,675
Containers (0.6%)
- -------------------------------------------------------------------------------
116,300 Owens-Illinois, Inc. $2.375 cv. pfd. 4,346,713
Electric Utilities (4.1%)
- -------------------------------------------------------------------------------
127,000 Aquila, Inc. $1.688 cv. pfd. 3,886,200
117,500 Cinergy Corp. $4.75 cv. pfd. 7,240,938
130,000 FPL Group, Inc. $4.00 units cv. pfd. 7,377,500
300,000 Great Plains Energy, Inc. 2.00 cum.
cv. pfd. 7,425,000
105,400 Sierra Pacific Resources 4.50 units
cum. cv. pfd. 4,234,972
--------------
30,164,610
Electronics (0.4%)
- -------------------------------------------------------------------------------
221,000 Solectron Corp. $1.813 units cv.
pfd. 3,038,750
Energy (0.5%)
- -------------------------------------------------------------------------------
80,920 Hanover Compressor Capital Trust
$3.625 cum. cv. pfd. 4,066,230
Financial (0.9%)
- -------------------------------------------------------------------------------
273,200 PMI Group, Inc. (The) $1.469 cv.
pfd. 6,864,150
Forest Products and Packaging (1.1%)
- -------------------------------------------------------------------------------
326,900 Smurfit-Stone Container Corp.
Ser. A, $1.75 cum. cv. pfd. 8,335,950
Health Care Services (0.8%)
- -------------------------------------------------------------------------------
128,200 Omnicare, Inc. $2.00 cv. pfd. 5,913,225
Insurance (5.3%)
- -------------------------------------------------------------------------------
407,600 Chubb Corp. (The) $1.75 cv. pfd. 11,616,600
198,700 Hartford Financial Services Group,
Inc. (The) $3.50 cv. pfd. 11,425,250
376,100 Travelers Property Casualty Corp.
$1.125 cv. pfd. 8,293,005
316,100 XL Capital, Ltd. $1.625 cv. pfd.
(Cayman Islands) 7,586,400
--------------
38,921,255
Investment Banking/Brokerage (1.0%)
- -------------------------------------------------------------------------------
160,000 Conseco, Inc. $1.38 cum. cv. pfd. 3,720,000
149,200 Lehman Brothers Holdings, Inc.
$1.562 cv. pfd. (S) 3,753,872
--------------
7,473,872
Medical Technology (1.6%)
- -------------------------------------------------------------------------------
225,000 Baxter International, Inc. $3.50 cv.
pfd. (S) 11,643,750
Metals (1.0%)
- -------------------------------------------------------------------------------
7,985 Freeport-McMoRan Copper & Gold, Inc.
144A 5.50% cv. pfd. 7,510,691
Natural Gas Utilities (3.2%)
- -------------------------------------------------------------------------------
268,700 ONEOK, Inc. $2.125 units cv. pfd. 9,049,816
272,600 Sempra Energy $2.125 units cv. pfd.
(S) 7,803,175
100,890 Southern Union Co. $2.875 cv. pfd. 6,759,630
--------------
23,612,621
Oil & Gas (2.3%)
- -------------------------------------------------------------------------------
181,000 Amerada Hess Corp. $3.50 cv. pfd. 13,326,125
43,600 Chesapeake Energy Corp. 144A $3.00
cv. pfd. 3,580,650
--------------
16,906,775
Pharmaceuticals (2.0%)
- -------------------------------------------------------------------------------
283,500 Schering-Plough Corp. $3.00 cv. pfd. 14,600,250
Photography/Imaging (2.1%)
- -------------------------------------------------------------------------------
59,640 Xerox Corp. 6.25% cv. pfd. 7,894,845
94,800 Xerox Corp. 144A $3.75 cv. pfd. 7,761,750
--------------
15,656,595
Railroads (1.1%)
- -------------------------------------------------------------------------------
13,000 Kansas City Southern Industries,
Inc. 144A 4.25% cum. cv. pfd. 8,207,875
Real Estate (1.1%)
- -------------------------------------------------------------------------------
153,800 Host Marriott Financial Trust $3.375
cv. pfd. 8,266,750
Retail (1.0%)
- -------------------------------------------------------------------------------
305,500 Albertson's, Inc. $1.813 cv. pfd. 7,522,938
Telecommunications (1.0%)
- -------------------------------------------------------------------------------
292,300 CenturyTel, Inc. $1.719 cv. pfd. 7,307,500
--------------
Total Convertible preferred stocks
(cost $301,243,488) $324,043,089
Common stocks (2.9%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
65,000 Fannie Mae $4,559,750
347,100 King Pharmaceuticals, Inc. (NON) (S) 3,786,861
2,023,487 Service Corporation International
(NON) 13,375,249
--------------
Total Common stocks
(cost $23,817,891) $21,721,860
Short-term investments (2.7%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$9,874,020 Putnam Prime Money Market Fund (e) $9,874,020
9,940,373 Short-term investments held as
collateral for loaned
securities with yields ranging from
1.75% to 2.03% and due dates ranging
from November 1, 2004 to December 6,
2004 (d) 9,937,057
--------------
Total Short-term investments
(cost $19,811,077) $19,811,077
- -------------------------------------------------------------------------------
Total Investments
(cost $693,851,249) $748,363,411
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $740,140,744.
(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 at this rate.
(S) Securities on loan, in part or in entirety, at October 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The rates shown on Floating Rate Notes (FRN) are the current interest
rates at October 31, 2004.
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
October 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $9,673,726 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $683,977,229) $738,489,391
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $9,874,020) (Note 5) 9,874,020
- -------------------------------------------------------------------------------
Cash 4,751
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 4,322,715
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 257,187
- -------------------------------------------------------------------------------
Receivable for securities sold 3,682,500
- -------------------------------------------------------------------------------
Total assets 756,630,564
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 3,500,000
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,088,464
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2 and 5) 1,143,790
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 297,234
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 116,128
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 2,515
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 224,190
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 9,937,057
- -------------------------------------------------------------------------------
Other accrued expenses 180,442
- -------------------------------------------------------------------------------
Total liabilities 16,489,820
- -------------------------------------------------------------------------------
Net assets $740,140,744
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $907,622,000
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 11,148,174
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (233,141,592)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 54,512,162
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $740,140,744
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($592,537,280 divided by 35,690,034 shares) $16.60
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $16.60)* $17.52
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($99,041,755 divided by 6,060,103 shares)** $16.34
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($11,586,819 divided by 702,020 shares)** $16.50
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($6,790,302 divided by 412,086 shares) $16.48
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $16.48)* $17.08
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($46,629 divided by 2,810 shares) $16.60
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($30,137,959 divided by 1,815,060 shares) $16.60
- -------------------------------------------------------------------------------
* 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
Year ended October 31, 2004
Investment income:
- -------------------------------------------------------------------------------
Dividends $20,948,474
- -------------------------------------------------------------------------------
Interest (including interest income of $76,448 from
investments in affiliated issuers) (Note 5) 11,022,473
- -------------------------------------------------------------------------------
Securities lending 39,703
- -------------------------------------------------------------------------------
Total investment income 32,010,650
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,728,375
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 1,191,607
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 141,566
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 26,564
- -------------------------------------------------------------------------------
Administrative services (Note 2) 14,308
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,518,836
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 1,131,730
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 93,829
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 56,715
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 30
- -------------------------------------------------------------------------------
Other 322,392
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 32,272
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (32,272)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (6,143)
- -------------------------------------------------------------------------------
Total expenses 9,219,809
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (52,479)
- -------------------------------------------------------------------------------
Net expenses 9,167,330
- -------------------------------------------------------------------------------
Net investment income 22,843,320
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 75,230,107
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 2,037
- -------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (1,068)
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments during the year (17,988,464)
- -------------------------------------------------------------------------------
Net gain on investments 57,242,612
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $80,085,932
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended October 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $22,843,320 $31,252,651
- -------------------------------------------------------------------------------
Net realized gain on investments and foreign
currency transactions 75,232,144 15,251,156
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments and assets and liabilities in
foreign currencies (17,989,532) 156,857,774
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 80,085,932 203,361,581
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (19,662,033) (24,766,118)
- -------------------------------------------------------------------------------
Class B (2,826,955) (4,055,772)
- -------------------------------------------------------------------------------
Class C (241,235) (186,649)
- -------------------------------------------------------------------------------
Class M (206,447) (312,745)
- -------------------------------------------------------------------------------
Class R (83) --
- -------------------------------------------------------------------------------
Class Y (1,156,309) (1,708,013)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 118 --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (147,737,484) (36,715,203)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (91,744,496) 135,617,081
Net assets
- -------------------------------------------------------------------------------
Beginning of year 831,885,240 696,268,159
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $11,148,174 and
$11,897,759, respectively) $740,140,744 $831,885,240
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.62 $20.26
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .51 (d) .58 .63 (f) .75 .76
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.17 3.14 (1.01)(f) (4.27) .30
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.68 3.72 (.38) (3.52) 1.06
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.54) (.58) (.62) (.62) (.77)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- (1.16) (1.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.54) (.58) (.62) (1.78) (2.70)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60 $15.46 $12.32 $13.32 $18.62
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.92 30.79 (3.20) (19.85) 5.16
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $592,537 $645,260 $542,156 $657,937 $933,703
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.09 (d) 1.07 1.08 1.01 .97
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.09 (d) 4.20 4.63 (f) 4.86 3.86
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class A shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.22 $12.14 $13.13 $18.37 $20.02
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .38 (d) .47 .52 (f) .63 .61
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.15 3.09 (.99)(f) (4.21) .29
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.53 3.56 (.47) (3.58) .90
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.41) (.48) (.52) (.50) (.62)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized
gain on investments -- -- -- (1.16) (1.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.41) (.48) (.52) (1.66) (2.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.34 $15.22 $12.14 $13.13 $18.37
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.10 29.82 (3.91) (20.46) 4.38
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $99,042 $129,317 $106,343 $143,286 $235,897
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.84 (d) 1.82 1.83 1.76 1.72
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.34 (d) 3.45 3.88 (f) 4.09 3.11
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.99 93.66 116.36 207.64 176.66
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class B shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.38 $12.27 $13.26 $18.55 $20.23
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .38 (d) .47 .52 (f) .64 .61
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.16 3.13 (.99)(f) (4.27) .31
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.54 3.60 (.47) (3.63) .92
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.42) (.49) (.52) (.50) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- (1.16) (1.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.42) (.49) (.52) (1.66) (2.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.50 $15.38 $12.27 $13.26 $18.55
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.09 29.79 (3.87) (20.51) 4.45
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,587 $7,178 $3,999 $4,825 $5,545
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.84 (d) 1.82 1.83 1.76 1.72
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.32 (d) 3.34 3.87 (f) 4.12 3.17
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class C shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.35 $12.24 $13.23 $18.50 $20.13
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .42 (d) .51 .56 (f) .67 .66
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.16 3.12 (1.00)(f) (4.24) .31
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.58 3.63 (.44) (3.57) .97
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.45) (.52) (.55) (.54) (.67)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- (1.16) (1.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.45) (.52) (.55) (1.70) (2.60)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.48 $15.35 $12.24 $13.23 $18.50
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.36 30.14 (3.65) (20.27) 4.73
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $6,790 $9,248 $6,861 $9,345 $15,370
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.59 (d) 1.57 1.58 1.51 1.47
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.59 (d) 3.65 4.13 (f) 4.34 3.36
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class M shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
December 1,
2003+ to
Per-share October 31,
operating performance 2004
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.79
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) (b) .43
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .89
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.32
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.51)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.51)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(c) 8.43*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $47
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) (d) 1.23*
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%)(b) 2.60*
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98
- ---------------------------------------------------------------------------------------------------------------------------------
+ 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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class R shares (Note 5).
(c) Total return assumes dividend reinvestment and does not reflect the
effect of sales charges.
(d) 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
- ---------------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $15.46 $12.32 $13.32 $18.63 $20.26
- ---------------------------------------------------------------------------------------------------------------------------------
Investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .53 (d) .62 .66 (f) .79 .81
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.19 3.13 (1.00)(f) (4.28) .31
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.72 3.75 (.34) (3.49) 1.12
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
From net investment income (.58) (.61) (.66) (.66) (.82)
- ---------------------------------------------------------------------------------------------------------------------------------
From net realized gain on investments -- -- -- (1.16) (1.93)
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (.58) (.61) (.66) (1.82) (2.75)
- ---------------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $16.60 $15.46 $12.32 $13.32 $18.63
- ---------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 11.21 31.11 (2.96) (19.68) 5.49
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $30,138 $40,883 $36,910 $45,561 $59,214
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .84 (d) .82 .83 .76 .72
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 3.35 (d) 4.46 4.87 (f) 5.12 4.11
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 52.98 93.66 116.36 207.64 176.66
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class Y shares (Note 5).
(e) Amount represents less than $0.01 per share.
(f) 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
October 31, 2004
Note 1
Significant accounting policies
Putnam Convertible Income-Growth Trust (the "fund"), a Massachusetts
business trust, 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. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). 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 October 31, 2004, the value of
securities loaned amounted to $9,673,726. The fund received cash
collateral of $9,937,057 which is pooled with collateral of other Putnam
funds into 23 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 of 1986 (the "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 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, 2004, the fund had a capital loss carryover of
$233,141,592 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
- ------------------------------------
$146,414,576 October 31, 2009
86,727,016 October 31, 2010
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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses and market discount. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended October 31, 2004, the fund reclassified $500,157 to
increase undistributed net investment income with an increase to
accumulated net realized losses of $500,157.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $72,924,948
Unrealized depreciation (18,412,786)
------------
Net unrealized appreciation 54,512,162
Undistributed ordinary income 12,548,373
Capital loss carryforward (233,141,592)
Cost for federal income
tax purposes $693,851,249
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 waive fees
and reimburse expenses of the fund through October 31, 2005 to the
extent necessary to ensure that the fund's expenses do not exceed the
average expenses of the front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund.
The expense reimbursement is based on a comparison of the fund's
expenses with the average annualized operating expenses of the funds
in its Lipper peer group for each calendar quarter during the fund's
last fiscal year, excluding 12b-1 fees and without giving effect to
any expense offset and brokerage service arrangements that may reduce
fund expenses. For the year ended October 31, 2004, Putnam Management
did not waive any of its management fee from the fund.
For the period ended October 31, 2004, Putnam Management has assumed
$32,272 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters (including those described in Note 6).
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 year ended October 31, 2004,
the fund paid PFTC $1,154,289 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 year ended October 31, 2004,
the fund's expenses were reduced by $52,479 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee,
of which $1,203, 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 Trustees have terminated the
Pension Plan with respect to any Trustee first elected after 2003.
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 year ended October 31, 2004, Putnam Retail Management, acting
as underwriter, received net commissions of $31,020 and $919 from the
sale of class A and class M shares, respectively, and received
$219,208 and $2,102 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 year ended October 31, 2004, Putnam Retail Management, acting as
underwriter, received $780 and no monies on class A and class M
redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $402,132,440 and $549,223,721, respectively. There were no
purchases or sales of U.S. government securities.
Note 4
Capital shares
At October 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 4,755,505 $78,090,730
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,028,822 16,881,612
- ----------------------------------------------------------------
5,784,327 94,972,342
Shares repurchased (11,826,249) (191,368,328)
- ----------------------------------------------------------------
Net decrease (6,041,922) $(96,395,986)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 1,494,853 $24,154,132
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 139,696 2,255,641
- ----------------------------------------------------------------
1,634,549 26,409,773
Shares repurchased (4,069,274) (65,210,130)
- ----------------------------------------------------------------
Net decrease (2,434,725) $(38,800,357)
- ----------------------------------------------------------------
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)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 458,943 $7,548,529
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,774 176,177
- ----------------------------------------------------------------
469,717 7,724,706
Shares repurchased (234,302) (3,810,884)
- ----------------------------------------------------------------
Net increase 235,415 $3,913,822
- ----------------------------------------------------------------
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
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 61,730 $1,008,825
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,665 173,692
- ----------------------------------------------------------------
72,395 1,182,517
Shares repurchased (262,965) (4,208,823)
- ----------------------------------------------------------------
Net decrease (190,570) $(3,026,306)
- ----------------------------------------------------------------
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 October 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 3,107 $51,041
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 5 83
- ----------------------------------------------------------------
3,112 51,124
Shares repurchased (302) (4,946)
- ----------------------------------------------------------------
Net increase 2,810 $46,178
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 252,457 $4,152,266
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 70,591 1,156,309
- ----------------------------------------------------------------
323,048 5,308,575
Shares repurchased (1,151,686) (18,783,410)
- ----------------------------------------------------------------
Net decrease (828,638) $(13,474,835)
- ----------------------------------------------------------------
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 October 31, 2004, Putnam, LLC owned 65 class R shares of the fund
(2.3% of class R shares outstanding), valued at $1,079.
Note 5
Investment in Putnam Prime Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Management. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. For the year
ended October 31, 2004, management fees paid were reduced by $6,143
relating to the fund's investment in Putnam Prime Money Market Fund.
Income distributions earned by the fund are recorded as income in the
statement of operations and totaled $76,448 for the period ended
October 31, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") 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 Securities 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.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and
operating expenses.
Putnam Management has negotiated an offer of settlement with the staff
of the SEC, which the staff has agreed to recommend to the
Com mis sioners of the SEC. The offer of settlement would resolve
matters arising out of the SEC's investigation of Putnam Management's
brokerage practices. The settlement would involve the alleged failure
by Putnam Management to adequately disclose its practices relating to
the allocation of brokerage on portfolio transactions to
broker-dealers who sold shares of Putnam mutual funds. Putnam
Management ceased directing brokerage to broker-dealers in connection
with the sale of fund shares as of January 1, 2004. Under the offer of
settlement, Putnam Management would pay a civil penalty in the amount
of $40 million and disgorgement in the amount of one dollar ($1). The
total amount of the payment would be paid to certain Putnam funds,
pursuant to a distribution plan to be submitted to the SEC. The
settlement remains subject to final documentation and approval by the
Commissioners of the SEC.
Federal tax information
(Unaudited)
The fund has designated 80.62% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the fund hereby designates
82.40%, or the maximum amount allowable, of its net taxable income as
qualified dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Brokerage commissions
(Unaudited)
Brokerage commissions are paid to firms that execute trades on behalf of
your fund. When choosing these firms, Putnam is required by law to seek
the best execution of the trades, taking all relevant factors into
consideration, including expected quality of execution and commission
rate. Listed below are the largest relationships based upon brokerage
commissions for your fund and the other funds in Putnam's Large-Cap
Value group for the year ended October 31, 2004. The other Putnam mutual
funds in this group are The George Putnam Fund of Boston, Putnam Classic
Equity Fund, Putnam Equity Income Fund, The Putnam Fund for Growth and
Income, Putnam New Value Fund, Putnam VT Equity Income Fund, Putnam VT
Growth and Income Fund, Putnam VT New Value Fund, and Putnam VT The
George Putnam Fund of Boston.
The top five firms that received brokerage commissions for trades
executed for the Large-Cap Value group are (in descending order)
Citigroup, Deutsche Bank, Merrill Lynch, Goldman Sachs, and CSFB.
Commissions paid to these firms together represented approximately 45%
of the total brokerage commissions paid for the year ended October 31,
2004.
Commissions paid to the next 10 firms together represented approximately
37% of the total brokerage commissions paid during the period. These
firms are (in alphabetical order) Bank of America, Bear Stearns,
Factset, ITG, JP Morgan, Lehman, Morgan Stanley, Sanford Bernstein,
Standard & Poor's, and UBS.
Commission amounts do not include "mark-ups" paid on bond or derivative
trades made directly with a dealer. Additional information about
brokerage commissions is available on the Securities and Exchange
Commission (SEC) Web site at www.sec.gov. Putnam funds disclose
commissions by firm to the SEC in semiannual filings on form N-SAR.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2004, there were 110 Putnam Funds. All Trustees other
than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees of
all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman currently
serve as Trustees of 82 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004,
Associate, Ropes & Gray LLP; prior to 2000, Law Clerk,
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Services for shareholders
Investor services
Help your investment grow Set up a program for systematic investing with
as little as $25 a month from a Putnam fund or from your own savings or
checking account. (Regular investing does not guarantee a profit or protect
against loss in a declining market.)
Switch funds easily* You can move money from one Putnam fund to another
within the same class of shares without a service charge.
Access your money easily You can have checks sent regularly
or redeem shares any business day at the then-current net
asset value, which may be more or less than the original
cost of the shares. Class B and class C shares carry a sales
charge that is applied to certain withdrawals.
How to buy additional shares You may buy shares through your
financial advisor or directly from Putnam. To open
an account by mail, send a check made payable to the name of
the fund along with a completed fund application. To add to
an existing account, complete the investment slip found at
the top of your Confirmation of Activity statement and
return it with a check payable to your fund.
For more information Visit www.putnaminvestments.com
A secure section of our Web site contains complete
information on your account, including balances and
transactions, updated daily. You may also conduct
transactions, such as exchanges, additional investments, and
address changes. Log on today to get your password.
Use our toll-free number 1-800-225-1581 Ask a helpful Putnam
representative or your financial advisor for details about
any of these or other services, or see your prospectus.
* This privilege is subject to change or termination. An
exchange of funds may result in a taxable event. In
addition, a 2% redemption fee will be applied to shares
exchanged or sold within 5 days of purchase, and
certain funds have imposed a 1% redemption fee on
total assets redeemed or exchanged between 6 and 90 days of
purchase.
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 and Putnam Floating
Rate 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
Independent Registered Public Accounting Firm
KPMG LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
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
Richard B. Worley
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
Steven D. Krichmar
Vice President and Principal Financial Officer
Michael T. Healy
Assistant Treasurer and Principal Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and Compliance Liaison Officer
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
Charles A. Ruys de Perez
Vice President and Chief Compliance 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.
AN019-216542 12/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Convertible Income-Growth Trust
Supplement to Annual Report dated 10/31/04
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 annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 10/31/04
NAV
1 year 11.21%
5 years 19.88
Annual average 3.69
10 years 130.63
Annual average 8.72
Life of fund (since class A inception, 6/29/72)
Annual average 10.92
Share value: NAV
10/31/03 $15.46
10/31/04 $16.60
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 $0.578 -- $0.578
- ----------------------------------------------------------------------------
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
(12/30/98) 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.
Please see pages 11 - 12 of the accompanying shareholder report for a
discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $4.21
Ending value (after expenses) $1,019.90
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $4.22
Ending value (after expenses) $1,020.96
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio + 0.83%
Average annualized expense ratio for Lipper peer group ++ 1.00%
++ For class Y shares, Putnam has adjusted the Lipper total expense
average to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
October 31, 2004 $30,504* $-- $2,800 $147
October 31, 2003 $25,050 $-- $2,450 $--
*Includes fees of $1,003 billed by the fund's independent auditor
to the fund for audit procedures necessitated by regulatory and
litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $2,947 and $2,450, respectively, to the fund, Putnam
Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing
services to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating
relating interfund trading.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
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.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
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(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(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: December 29, 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: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004