The Putnam
Fund for Growth
and Income
Item 1. Report to Stockholders:
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The following is a copy of the report transmitted to stockholders pursuant
to Rule 30e-1 under the Investment Company Act of 1940:
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
4-30-03
[GRAPHIC OMITTED: GREENLEAF]
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FROM THE TRUSTEES
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III]
Dear Fellow Shareholder:
It is of some comfort that we report modestly positive results at net
asset value for The Putnam Fund for Growth and Income during the
semiannual period ended April 30, 2003, though at public offering price
the results were slightly negative. The fund performed in line with its
Lipper peer group, but because of differences in portfolio composition,
it underperformed its benchmark index. You will find the details on page
7.
These results should be taken in the context of the continuing
volatility that has plagued the global economy and securities markets
over the past three years. Such sustained periods of decline do not go
on forever and history has shown us that eventually they take a turn for
the better. In the following report, your fund's management team
discusses the results for the semiannual period and offers its views on
prospects for the fiscal year's second half.
As we look back on one of the most challenging periods in recent
history, we would like you to know how much we appreciate your patience
and continued confidence in Putnam. We believe those who maintain a
long-term focus and a diversified approach to investing are often
rewarded for their fortitude.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
June 18, 2003
REPORT FROM FUND MANAGEMENT
FUND HIGHLIGHTS
* The Putnam Fund for Growth and Income posted a modest return at net
asset value for the semiannual period ended April 30, 2003. The
fund's class A shares returned 4.34%. Return at public offering price
was -1.65%.
* Due to differences in sector weightings, the fund underperformed its
benchmark, the S&P 500/Barra Value Index, which returned 5.36%.
* At net asset value, the fund's return for class A shares was in line
with the average for its competitive peer group, the Lipper Large Cap
Value Fund category, which was 4.12% for the period.
* Index and Lipper results should be compared to fund performance at
net asset value. See the Performance Summary on page 7 for complete fund
performance, comparative performance, and Lipper data.
* PERFORMANCE COMMENTARY
We are pleased to report that after many months of negative returns, the
fund -- along with its benchmark -- achieved positive returns at NAV
during the first half of fiscal 2003. We consider this a respectable
showing for a volatile period in which investor decisions were based
largely on macroeconomic and geopolitical factors rather than on
business fundamentals. In comparison to the benchmark index, the fund
has greater exposure to stocks in non-cyclical sectors, such as consumer
staples and health care, which, after many months of strong performance,
lagged as investors grew more optimistic about an economic recovery.
This difference in sector weightings was a primary reason why the fund
underperformed its benchmark. Overall, we are encouraged by the rebound
in the equity markets and expect it to continue. We would like to point
out that it would not be unusual for the fund, which outperformed its
benchmark during down months, to lag it slightly when equities begin to
rally.
Fund Profile
The Putnam Fund for Growth and Income seeks capital growth and current
income by investing primarily in undervalued stocks of large,
established, dividend- paying companies. The fund may be appropriate for
investors who wish to diversify a portfolio that emphasizes growth
investments.
* MARKET OVERVIEW
Since November, the financial markets have experienced increased
month-to-month volatility. Equities surged in October, November,
January, and April, but retreated sharply in December, February, and
March. Uncertainty held investors captive, as the events unfolding in
Iraq shifted from positive to negative almost on a daily basis, and
signs of economic weakness hinted at a double dip recession. High oil
prices and lingering doubts about corporate governance clouded the
outlook. Consumer confidence dipped as well. Yet, during the semiannual
period, clarity improved. With an end to hostilities in Iraq, oil prices
fell, and investors began to notice that corporate profitability had
improved. Consumer confidence strengthened. Value and growth stocks
advanced, but neither asset class emerged as a leader. Although there
was a fair amount of divergence in the performance of certain sectors,
as a general rule, the fund does not make large sector-specific bets,
and did not benefit particularly from these trends. As the period ended,
the equity markets experienced a sharp upward correction.
MARKET SECTOR PERFORMANCE 6 MONTHS ENDED 4/30/03
Equities
S&P 500/Barra Value Index (large-cap value stocks) 5.36%
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Russell 1000 Growth Index (large-cap growth stocks) 4.28%
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S&P 500 Index (broad market) 4.48%
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Morgan Stanley Capital International World Index
(international stocks) 3.62%
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Bonds
Lehman Aggregate Bond Index (investment-grade bonds) 4.31%
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Lehman Intermediate Treasury Bond Index 1.91%
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Lehman Municipal Bond Index 3.59%
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These indexes provide an overview of performance in different market
sectors for the six months ended 4/30/03.
* STRATEGY OVERVIEW
Your fund remained fully invested in the market, as is its practice
whether market trends are favorable or unfavorable for equities. We
retained the fund's characteristic focus on high-quality stocks of
large, established companies that are undervalued. As stock valuations
fell during the prolonged bear market, many companies with attractive
growth prospects became so undervalued that they were identified as
portfolio candidates. We took advantage of this trend by purchasing
shares of these companies, and in our opinion, upgraded the quality of
the portfolio. We believe we have built in the potential for future
returns without incurring additional risk. The fund maintains its focus
on achieving results over the long term; thus our strategies are not
materially changed from one period to the next. The fund is broadly
diversified across industry sectors and portfolio turnover has remained
low.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED*
as of as of
4/30/03 10/31/02
Banking 11.6% 11.5%
Pharmaceuticals 10.2% 10.9%
Financial 8.7% 8.6%
Oil and gas 6.9% 8.1%
Insurance 5.3% 2.1%
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
The fund's position in General Electric exemplifies the high- quality,
blue-chip equities we favor for the portfolio. GE's attractive valuation
gave us an opportunity to expand the fund's position, which we did
during the period, with beneficial results. The stock experienced a
significant price increase and boosted the portfolio's return.
We also increased the fund's exposure to insurance companies, because
valuations had become increasingly attractive as stock prices in this
sector weakened. As a group, insurers were beginning to benefit from
higher premium pricing and earnings growth. In particular, we added to
the fund's position in American International Group (AIG), which helped
performance.
We reduced exposure to the technology sector. Tech stocks, which had
performed strongly in recent months, became less attractive value
investments as they approached what we considered fair value. Notably,
we took profits and eliminated the fund's long-term position in IBM.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS*
Citigroup, Inc.
Financial
Pfizer, Inc.
Pharmaceuticals
Exxon Mobil Corp.
Oil and gas
American International Group, Inc.
Insurance
General Electric Co.
Conglomerate
Fannie Mae
Financial
Bank of America Corp.
Banking
Merck & Co., Inc.
Pharmaceuticals
Hewlett-Packard Co.
Computers
U.S. Bancorp
Banking
Footnote reads:
*These holdings represent 28.1% of the fund's net assets as of 4/30/03.
The fund's holdings will change over time.
We also took profits and reduced the fund's exposure to energy stocks,
which had enjoyed strong performance as the price of oil surged in the
pre-war environment.
We cut back on consumer staples stocks, because they had approached our
fair value estimates. We marginally increased exposure to cyclical, or
economically sensitive stocks, specifically, AOL TimeWarner.
Historically, this stock has not been a part of the value universe, but
its underperformance, which we believe will be temporary, brought the
stock valuation down to a level where we were able to add it to the
portfolio. A selection of the portfolio's utility stocks rebounded
sharply, reversing a long-term trend of underperformance. Fund holding
Edison International, California's second-largest utility company, is
making slow but steady progress recovering from that state's energy
crisis.
Altria, Pfizer, and Royal Dutch Petroleum dampened returns. Stock of
Altria (formerly Philip Morris) declined when anti-tobacco litigation
resulted in a record-high legal judgment against the company. Altria was
among the portfolio's top 10 holdings, and the loss detracted from
returns. Pfizer also contributed negatively. This pharmaceutical
company's plans to acquire its rival, Pharmacia, suffered protracted
delays, and waning investor interest. The merger eventually was
completed at the end of the reporting period, but the delay hindered
performance. Our position in Royal Dutch Petroleum also dampened fund
performance as the stock underperformed other energy stocks.
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.
* THE FUND'S MANAGEMENT TEAM
The fund is managed by the Putnam Large-Cap Value Team. The members of
the team are Hugh Mullin (Portfolio Leader), David L. King (Portfolio
Member), Christopher Miller (Portfolio Member), Michael Abata, Bart
Geer, Deborah Kuenstner, Cole Lannum, and Jeanne Mockard.
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.
After three years of market declines and months of disappointing
negative returns, we believe we have reason for a more positive outlook
for your fund, and for equity investing in general. Many of the external
issues that have weighed heavily on the markets are subsiding, and
corrective measures are beginning to have beneficial effects. For
instance, we believe the problems of corporate governance and accounting
are largely behind us. After a handful of high-profile cases in which
company chiefs faced close scrutiny under a harsh spotlight, many firms
have implemented rigorous new rules and practices designed to strengthen
shareholder confidence in corporate executives. We believe that in time,
investor confidence will be restored.
Although President Bush's tax reform proposal was scaled back because of
budget constraints, more favorable tax treatment of dividend income may
increase the incentive for companies to hand profits over to
shareholders. Your fund could benefit from such reform.
There has been substantial improvement in the overall credit environment
in the past six months, which historically has signaled improving
corporate profitability. Indeed, profitability is improving, as
evidenced by fewer earnings disappointments, and an increase in the
number of companies achieving their earnings and profit targets.
Inflation remains low, as do short-term interest rates, and the Federal
Reserve Board has maintained its accommodative policy. The case for
equities, as we see it, is not that they are inexpensive, but that they
have become very attractive compared to high-quality short-term bonds,
money market instruments, and long-term Treasury bonds. We believe the
fund is positioned to take advantage of this appreciation potential as
the market begins to recover.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice.
PERFORMANCE SUMMARY
This section provides information about your fund's performance during
its semiannual period, which ended April 30, 2003. 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. Past performance does not
indicate 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. A profile of
your fund's strategy appears on the first page of this report. See page
9 for definitions of some terms used in this section.
TOTAL RETURN FOR PERIODS ENDED 4/30/03
Class A Class B Class C Class M Class R
(inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) (1/21/03)
NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 4.34% -1.65% 3.99% -1.01% 3.87% 2.87% 4.02% 0.40% 4.24%
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1 year -14.73 -19.64 -15.30 -19.51 -15.36 -16.20 -15.17 -18.15 -14.89
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5 years -11.83 -16.88 -15.07 -16.41 -15.04 -15.04 -14.03 -17.05 -12.89
Annual average -2.49 -3.63 -3.21 -3.52 -3.21 -3.21 -2.98 -3.67 -2.72
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10 years 118.83 106.20 103.04 103.04 103.07 103.07 108.05 100.80 113.55
Annual average 8.15 7.50 7.34 7.34 7.34 7.34 7.60 7.22 7.88
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Annual average
(life of fund) 12.13 11.98 11.08 11.08 11.28 11.28 11.36 11.27 11.84
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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. 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.
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/03
Lipper Large Cap
S&P 500/Barra Value Funds
Value Index category average*
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6 months 5.36% 4.12%
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1 year -14.62 -15.67
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5 years -11.85 -12.02
Annual average -2.49 -2.65
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10 years 134.14 121.79
Annual average 8.88 8.16
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Annual average
(life of fund) --+ --+
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*Over the 6-month and 1-, 5-, and 10-year periods ended 4/30/03, there were
409, 384, 206, and 66 funds, respectively, in this Lipper category.
+The benchmarks were not in existence at the time of the fund's inception. The
S&P 500/Barra Value Index commenced 12/31/74. The fund's Lipper category
commenced 12/31/59.
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 4/30/03
Class A Class B Class C Class M Class R
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Distributions (number) 2 2 2 2 1
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Income $0.100 $0.046 $0.046 $0.064 $0.047
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Capital gains -- -- -- -- --
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Total $0.100 $0.046 $0.046 $0.064 $0.047
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Share value: NAV POP NAV NAV NAV POP NAV
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10/31/02 $13.95 $14.80 $13.75 $13.90 $13.86 $14.36 --
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1/21/03* -- -- -- -- -- -- $14.58
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4/30/03 14.45 15.33 14.25 14.39 14.35 14.87 14.45
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Current return (end of period)
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Current dividend
rate 1 1.38% 1.30% 0.65% 0.64% 0.89% 0.86% 1.30%
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Current 30-day
SEC yield 2 1.62 1.53 0.91 0.91 1.15 1.11 1.37
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* Inception 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.
TOTAL RETURN FOR PERIODS ENDED 3/31/03 (most recent calendar quarter)
Class A Class B Class C Class M Class R
(inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) (1/21/03)
NAV POP NAV CDSC NAV CDSC NAV POP NAV
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6 months 3.22% -2.71% 2.85% -2.15% 2.74% 1.74% 2.97% -0.66% 3.11%
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1 year -25.72 -30.00 -26.30 -29.97 -26.34 -27.08 -26.11 -28.68 -25.90
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5 years -18.90 -23.55 -21.90 -23.13 -21.87 -21.87 -20.90 -23.67 -19.88
Annual average -4.10 -5.23 -4.82 -5.13 -4.82 -4.82 -4.58 -5.26 -4.34
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10 years 99.91 88.45 85.55 85.55 85.52 85.52 90.12 83.42 94.98
Annual average 7.17 6.54 6.38 6.38 6.37 6.37 6.64 6.25 6.91
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Annual average
(life of fund) 11.94 11.80 10.89 10.89 11.10 11.10 11.18 11.09 11.66
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Past performance does not indicate 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.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. The
NAV is calculated by dividing the net value of all the fund's assets by
the number of outstanding shares.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares 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 charges or CDSC and
are available only to certain defined contribution plans.
COMPARATIVE INDEXES
S&P 500/Barra Value Index is an unmanaged index of
capitalization-weighted stocks chosen for their value orientation.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 chosen for their growth orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index of developed and emerging markets.
Lehman Aggregate Bond Index is an unmanaged index used as a general
measure of U.S. fixed income securities.
Lehman Intermediate Treasury Bond Index is an unmanaged index of
Treasury bonds with maturities between 1 and up to 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
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 Inc. is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
A NOTE ABOUT DUPLICATE MAILINGS
In response to investors' requests, the SEC has modified mailing
regulations for proxy statements, semiannual and annual reports, and
prospectuses. Putnam is now able to send a single copy of these
materials to customers who share the same address. This change will
automatically apply to all shareholders except those who notify us. If
you would prefer to receive your own copy, please call Putnam at
1-800-225-1581.
A GUIDE TO THE FINANCIAL STATEMENTS
These sections of the report, as well as the accompanying Notes,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number
of the fund's shares. It lists distributions and their sources (net
investment income or realized capital gains) over the current reporting
period and the most recent fiscal year-end. The distributions listed
here may not match the sources listed in the Statement of operations
because the distributions are determined on a tax basis and may be paid
in a different period from the one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment income
ratios, and portfolio turnover in one summary table, reflecting the five
most recent reporting periods. In a semiannual report, the highlight
table also includes the current reporting period. For open-end funds, a
separate table is provided for each share class.
THE FUND'S PORTFOLIO
April 30, 2003 (Unaudited)
COMMON STOCKS (96.8%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (2.2%)
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5,118,092 Boeing Co. (The) $139,621,539
879,629 Goodrich Corp. 12,376,380
1,160,474 Lockheed Martin Corp. 58,081,724
529,165 Northrop Grumman Corp. 46,540,062
100,000 Raytheon Co. 2,993,000
1,504,300 Rockwell Collins, Inc. 32,161,934
2,013,843 United Technologies Corp. 124,475,636
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416,250,275
Airlines (0.2%)
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2,936,069 Southwest Airlines Co. 46,859,661
Automotive (0.5%)
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6,466,539 Ford Motor Co. 66,605,352
766,187 Lear Corp. (NON) 30,448,271
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97,053,623
Banking (11.6%)
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586,510 AmSouth Bancorporation 12,346,036
5,850,298 Bank of America Corp. 433,214,567
7,580,209 Bank of New York Co., Inc. (The) 200,496,528
1,387,904 Bank One Corp. 50,033,939
1,246,199 BB&T Corp. 40,626,087
2,697,225 Comerica, Inc. 117,356,260
1,152,300 Fifth Third Bancorp 56,796,867
901,167 First Tennessee National Corp. 39,471,115
3,457,533 FleetBoston Financial Corp. 91,693,775
19,900 Greenpoint Financial Corp. 950,424
484,100 M&T Bank Corp. 40,891,927
935,100 Mellon Financial Corp. 24,733,395
2,098,851 National City Corp. 62,881,576
3,988 National Commerce Financial Corp. 81,116
326,440 Northern Trust Corp. 11,458,044
136,427 PNC Financial Services Group 5,989,145
1,469,855 Sovereign Bancorp, Inc. 22,709,260
2,254,000 Synovus Financial Corp. 43,885,380
132,200 TCF Financial Corp. 5,235,120
15,359,660 U.S. Bancorp 340,216,469
1,897,640 Wachovia Corp. 72,508,824
5,151,807 Washington Mutual, Inc. 203,496,377
6,386,343 Wells Fargo & Co. 308,204,913
505,495 Zions Bancorp. 24,905,739
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2,210,182,883
Beverage (2.1%)
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519,400 Anheuser-Busch Cos., Inc. 25,907,672
6,738,008 Coca-Cola Co. (The) 272,215,523
3,160,038 Coca-Cola Enterprises, Inc. 61,589,141
1,593,400 Pepsi Bottling Group, Inc. (The) 32,728,436
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392,440,772
Building Materials (0.1%)
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1,141,700 Masco Corp. 24,055,619
Cable Television (0.5%)
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1,664,128 Comcast Corp. Class A (NON) 53,102,324
1,230,300 Comcast Corp. Class A (Special) (NON) 36,982,818
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90,085,142
Chemicals (2.4%)
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709,925 3M Co. 89,478,947
820,800 Avery Dennison Corp. 43,510,608
4,470,236 Dow Chemical Co. (The) 145,908,503
2,090,114 E.I. du Pont de Nemours & Co. 88,892,548
1,184,202 Eastman Chemical Co. 36,153,687
669,200 Hercules, Inc. (NON) 6,792,380
1,069,324 PPG Industries, Inc. 51,872,907
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462,609,580
Coal (0.1%)
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527,000 Arch Coal, Inc. 9,528,160
Commercial and Consumer Services (0.1%)
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477,858 H&R Block, Inc. 18,454,876
Computers (2.2%)
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22,705,430 Hewlett-Packard Co. 370,098,509
11,909,300 Sun Microsystems, Inc. (NON) 39,300,690
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409,399,199
Conglomerates (5.1%)
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36,745 Berkshire Hathaway, Inc. Class B (NON) 85,689,340
19,329,986 General Electric Co. 569,268,088
2,973,527 Honeywell International, Inc. 70,175,237
170,878 Textron, Inc. 5,039,192
14,837,649 Tyco International, Ltd. (Bermuda) 231,467,324
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961,639,181
Consumer Finance (1.9%)
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2,581,680 Capital One Financial Corp. 108,094,942
12,803,674 MBNA Corp. 241,989,439
977,200 Providian Financial Corp. (NON) 7,201,964
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357,286,345
Consumer Goods (3.3%)
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1,363,300 Colgate-Palmolive Co. 77,939,861
1,995,385 Fortune Brands, Inc. 96,576,634
1,705,300 Gillette Co. (The) 51,926,385
2,345,830 Kimberly-Clark Corp. 116,751,959
1,358,433 Newell Rubbermaid, Inc. 41,405,038
2,456,183 Procter & Gamble Co. 220,688,043
331,928 Unilever NV (Netherlands) 20,901,506
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626,189,426
Consumer Services (0.2%)
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9,295,800 Service Corp. International (NON) 31,419,804
Containers (0.1%)
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107,600 Ball Corp. 6,042,816
431,800 Owens-Illinois, Inc. (NON) 3,838,702
403,010 Sealed Air Corp. (NON) 17,268,979
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27,150,497
Distribution (0.1%)
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714,509 SYSCO Corp. 20,527,844
Electric Utilities (3.4%)
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8,424,485 CenterPoint Energy, Inc. 66,553,432
521,700 Dominion Resources, Inc. 30,874,206
1,387,900 Duke Energy Corp. 24,413,161
7,461,917 Edison International (NON) 108,869,369
1,505,698 Entergy Corp. 70,180,584
1,095,301 Exelon Corp. 58,094,765
2,577,375 FirstEnergy Corp. 86,934,859
485,000 FPL Group, Inc. 29,521,950
5,263,543 PG&E Corp. (NON) 78,847,874
1,816,879 Progress Energy, Inc. 75,909,205
692,600 TXU Corp. 13,796,592
49,151 XCEL Energy, Inc. 664,522
-------------
644,660,519
Electrical Equipment (0.3%)
- -------------------------------------------------------------------------------------------------------------------
1,084,800 Emerson Electric Co. 54,999,360
497,964 Rockwell International Corp. 11,353,579
-------------
66,352,939
Electronics (0.7%)
- -------------------------------------------------------------------------------------------------------------------
901,283 Flextronics International, Ltd. (Singapore) (NON) 7,886,226
3,669,300 LSI Logic Corp. (NON) 19,667,448
6,265,100 Motorola, Inc. 49,556,941
18,330,868 Solectron Corp. (NON) 58,475,469
-------------
135,586,084
Energy (1.0%)
- -------------------------------------------------------------------------------------------------------------------
290,000 BJ Services Co. (NON) 10,587,900
5,021,463 Halliburton Co. 107,509,523
1,093,600 Schlumberger, Ltd. 45,854,648
1,117,200 Transocean Sedco Forex, Inc. (NON) 21,282,660
-------------
185,234,731
Financial (8.7%)
- -------------------------------------------------------------------------------------------------------------------
240,110 American Express Co. 9,090,565
1,203,200 CIT Group, Inc. 24,509,184
22,829,678 Citigroup, Inc. (SEG) 896,064,862
6,169,701 Fannie Mae 446,624,655
4,071,245 Freddie Mac 235,725,086
1,040,420 MGIC Investment Corp. 47,297,493
-------------
1,659,311,845
Food (1.7%)
- -------------------------------------------------------------------------------------------------------------------
2,703,225 Archer Daniels Midland Co. 29,951,733
1,752,053 ConAgra, Inc. 36,793,113
655,244 Del Monte Foods Co. (NON) 5,209,190
1,456,754 H.J. Heinz Co. 43,527,810
420,217 Hershey Foods Corp. 27,419,159
2,270,994 Kellogg Co. 74,352,344
1,799,733 Kraft Foods, Inc. Class A 55,611,750
3,113,452 Sara Lee Corp. 52,243,725
-------------
325,108,824
Forest Products and Packaging (0.8%)
- -------------------------------------------------------------------------------------------------------------------
312,900 Boise Cascade Corp. 7,187,313
1,123,700 Georgia-Pacific Corp. 17,349,928
1,611,230 Smurfit-Stone Container Corp. (NON) 22,670,006
2,259,867 Weyerhaeuser Co. 112,066,805
-------------
159,274,052
Gaming & Lottery (0.3%)
- -------------------------------------------------------------------------------------------------------------------
956,658 Harrah's Entertainment, Inc. (NON) 37,682,759
981,799 MGM Mirage, Inc. (NON) 27,902,728
-------------
65,585,487
Health Care Services (2.4%)
- -------------------------------------------------------------------------------------------------------------------
630,961 AmerisourceBergen Corp. 36,501,094
4,420 Anthem, Inc. (NON) 303,389
1,909,589 Cardinal Health, Inc. 105,562,080
437,574 Caremark Rx, Inc. (NON) 8,712,098
1,435,235 CIGNA Corp. 75,062,791
269,777 Express Scripts, Inc. Class A (NON) 15,906,052
1,293,192 HCA, Inc. 41,511,463
494,200 McKesson Corp. 13,709,108
643,572 Quest Diagnostics, Inc. (NON) 38,453,427
959,333 UnitedHealth Group, Inc. 88,383,349
449,750 Wellpoint Health Networks, Inc. (NON) 34,154,015
-------------
458,258,866
Homebuilding (--%)
- -------------------------------------------------------------------------------------------------------------------
124,700 Centex Corp. 8,232,694
Household Furniture and Appliances (0.1%)
- -------------------------------------------------------------------------------------------------------------------
361,907 Whirlpool Corp. 19,358,405
Insurance (5.3%)
- -------------------------------------------------------------------------------------------------------------------
3,951,223 ACE, Ltd. (Bermuda) 130,706,457
9,824,377 American International Group, Inc. 569,322,647
179,300 Fidelity National Financial, Inc. 6,167,920
515,028 Hartford Financial Services Group, Inc. (The) 20,992,541
213,211 Jefferson-Pilot Corp. 8,547,629
113,103 John Hancock Financial Services Inc. 3,282,249
76,937 Loews Corp. 3,175,190
470,464 MBIA, Inc. 21,029,741
1,220,500 Metlife, Inc. 35,064,965
195,100 Old Republic International Corp. 5,970,060
161,710 Radian Group, Inc. 6,419,887
453,985 Torchmark Corp. 17,591,919
3,033,105 Travelers Property Casualty Corp. Class A 49,227,294
3,208,441 Travelers Property Casualty Corp. Class B 52,137,166
1,396,733 UnumProvident Corp. 16,062,430
691,000 XL Capital, Ltd. Class A (Bermuda) 56,869,300
-------------
1,002,567,395
Investment Banking/Brokerage (3.2%)
- -------------------------------------------------------------------------------------------------------------------
420,288 Goldman Sachs Group, Inc. (The) 31,899,859
11,034,291 JPMorgan Chase & Co. 323,856,441
370,000 Legg Mason, Inc. 20,091,000
5,039,100 Merrill Lynch & Co., Inc. 206,855,055
611,157 Morgan Stanley Dean Witter & Co. 27,349,276
-------------
610,051,631
Lodging/Tourism (0.4%)
- -------------------------------------------------------------------------------------------------------------------
1,154 Carnival Corp. 31,839
1,434,800 Marriott International, Inc. Class A 51,523,668
1,219,390 Royal Caribbean Cruises, Ltd. 22,644,072
10,185 Starwood Hotels & Resorts Worldwide, Inc. 273,365
-------------
74,472,944
Machinery (0.6%)
- -------------------------------------------------------------------------------------------------------------------
1,631,263 Ingersoll-Rand Co. Class A (Bermuda) 71,906,073
822,200 Parker-Hannifin Corp. 33,447,096
-------------
105,353,169
Manufacturing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
801,310 Dover Corp. 23,029,649
Media (2.4%)
- -------------------------------------------------------------------------------------------------------------------
9,652,300 AOL Time Warner, Inc. (NON) 132,043,464
13,871,715 Liberty Media Corp. Class A (NON) 152,588,865
9,053,109 Walt Disney Co. (The) 168,931,014
-------------
453,563,343
Medical Technology (0.2%)
- -------------------------------------------------------------------------------------------------------------------
1,426,200 Baxter International, Inc. 32,802,600
Metals (0.6%)
- -------------------------------------------------------------------------------------------------------------------
3,279,900 Alcoa, Inc. 75,208,107
836,008 Barrick Gold Corp. 12,498,320
457,400 Nucor Corp. 18,684,790
-------------
106,391,217
Natural Gas Utilities (0.6%)
- -------------------------------------------------------------------------------------------------------------------
2,873,500 El Paso Corp. 21,551,250
3,352,200 NiSource, Inc. 63,356,580
881,194 Sempra Energy 23,651,247
-------------
108,559,077
Office Equipment & Supplies (0.1%)
- -------------------------------------------------------------------------------------------------------------------
425,307 Pitney Bowes, Inc. 14,932,529
Oil & Gas (6.9%)
- -------------------------------------------------------------------------------------------------------------------
493,500 Amerada Hess Corp. 22,281,525
2,111,761 Burlington Resources, Inc. 97,795,652
2,634,399 Chevron Texaco Corp. 165,466,601
822,893 ConocoPhillips 41,391,518
555,532 Devon Energy Corp. 26,248,887
18,774,358 Exxon Mobil Corp. 660,857,402
1,830,299 Marathon Oil Corp. 41,675,908
776,255 Noble Corp. (Cayman Islands) (NON) 24,025,092
521,438 Occidental Petroleum Corp. 15,564,924
3,005,700 Royal Dutch Petroleum Co. ADR (Netherlands) 122,873,016
3,017,476 Unocal Corp. 83,584,085
-------------
1,301,764,610
Pharmaceuticals (10.2%)
- -------------------------------------------------------------------------------------------------------------------
6,457,234 Abbott Laboratories 262,357,417
4,999,696 Bristol-Myers Squibb Co. 127,692,236
3,105,542 King Pharmaceuticals, Inc. (NON) 39,160,885
2,414,696 Lilly (Eli) & Co. 154,105,899
6,725,782 Merck & Co., Inc. 391,305,997
21,553,435 Pfizer, Inc. 662,768,126
5,798,782 Schering-Plough Corp. 104,957,954
4,440,532 Wyeth 193,296,358
-------------
1,935,644,872
Photography/Imaging (0.3%)
- -------------------------------------------------------------------------------------------------------------------
1,504,081 Eastman Kodak Co. 44,987,063
2,067,682 Xerox Corp. (NON) 20,387,345
-------------
65,374,408
Power Producers (0.1%)
- -------------------------------------------------------------------------------------------------------------------
1,786,600 Reliant Resources, Inc. (NON) 10,040,692
Publishing (0.1%)
- -------------------------------------------------------------------------------------------------------------------
291,034 McGraw-Hill Cos., Inc. (The) 16,993,475
Railroads (1.3%)
- -------------------------------------------------------------------------------------------------------------------
2,674,701 Burlington Northern Santa Fe Corp. 75,319,580
245,229 CSX Corp. 7,842,423
2,782,008 Norfolk Southern Corp. 59,006,390
1,725,501 Union Pacific Corp. 102,701,820
-------------
244,870,213
Real Estate (0.4%)
- -------------------------------------------------------------------------------------------------------------------
193,900 Boston Properties, Inc. (R) 7,600,880
2,331,742 Equity Office Properties Trust (R) 60,555,340
-------------
68,156,220
Regional Bells (3.8%)
- -------------------------------------------------------------------------------------------------------------------
7,840,135 BellSouth Corp. 199,845,041
1,567,800 Qwest Communications International, Inc. (NON) 5,910,606
13,101,383 SBC Communications, Inc. 306,048,307
5,882,210 Verizon Communications, Inc. 219,877,010
-------------
731,680,964
Restaurants (0.4%)
- -------------------------------------------------------------------------------------------------------------------
689,900 Darden Restaurants, Inc. 12,080,149
3,494,300 McDonald's Corp. 59,752,530
-------------
71,832,679
Retail (2.9%)
- -------------------------------------------------------------------------------------------------------------------
1,136,600 Albertsons, Inc. 22,572,876
132,296 AutoZone, Inc. (NON) 10,690,840
1,375,120 Federated Department Stores, Inc. 42,106,174
2,085,500 Home Depot, Inc. (The) 58,665,115
5,047,277 JC Penney Co., Inc. (Holding Co.) 86,106,546
6,435,330 Limited, Inc. (The) 93,569,698
486,977 Lowe's Cos., Inc. 21,373,421
3,698,228 Office Depot, Inc. (NON) 46,819,566
1,445,898 RadioShack Corp. 34,282,242
11,679,400 Rite Aid Corp. (NON) 39,709,960
1,113,400 Sears, Roebuck & Co. 31,553,756
411,439 Staples, Inc. (NON) 7,833,799
204,361 Supervalu, Inc. 3,365,826
2,798,067 TJX Cos., Inc. (The) 53,862,790
-------------
552,512,609
Software (1.2%)
- -------------------------------------------------------------------------------------------------------------------
345,477 Amdocs, Ltd. (Guernsey) (NON) 6,101,124
2,106,844 BMC Software, Inc. (NON) 31,434,112
11,308,835 Computer Associates International, Inc. 183,655,480
210,518 Symantec Corp. (NON) 9,252,266
-------------
230,442,982
Technology Services (0.2%)
- -------------------------------------------------------------------------------------------------------------------
468,869 Computer Sciences Corp. (NON) 15,449,234
687,487 Electronic Data Systems Corp. 12,477,889
282,616 SunGard Data Systems, Inc. (NON) 6,076,244
-------------
34,003,367
Telecommunications (0.8%)
- -------------------------------------------------------------------------------------------------------------------
1,593,652 AT&T Corp. 27,171,767
6,712,573 AT&T Wireless Services, Inc. (NON) 43,363,222
1,143,211 CenturyTel, Inc. 33,667,564
4,602,862 Sprint Corp. (FON Group) 52,978,942
-------------
157,181,495
Textiles (0.2%)
- -------------------------------------------------------------------------------------------------------------------
721,880 Jones Apparel Group, Inc. (NON) 20,588,018
683,606 V. F. Corp. 26,893,060
-------------
47,481,078
Tobacco (1.8%)
- -------------------------------------------------------------------------------------------------------------------
10,780,487 Altria Group, Inc. 331,607,780
376,750 R.J. Reynolds Tobacco Holdings, Inc. 10,613,048
-------------
342,220,828
Toys (0.3%)
- -------------------------------------------------------------------------------------------------------------------
2,944,920 Mattel, Inc. 64,022,561
Waste Management (0.3%)
- -------------------------------------------------------------------------------------------------------------------
478,700 Republic Services, Inc. (NON) 10,272,902
2,041,110 Waste Management, Inc. 44,332,909
---------------
54,605,811
---------------
Total Common Stocks (cost $18,287,252,103) $18,388,649,751
CONVERTIBLE PREFERRED STOCKS (0.5%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------
1,034,400 Ford Motor Company Capital Trust II $3.25 cum. cv. pfd. $45,255,000
14,000 Hercules Trust II 6.50% units cum. cv. pfd. 8,190,000
634,000 Xerox Corp. 144A $3.75 cv. pfd. 41,923,250
-------------
Total Convertible Preferred Stocks (cost $91,121,827) $95,368,250
CONVERTIBLE BONDS AND NOTES (0.3%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$11,629,000 Elan Finance Corp., Ltd. cv. Liquid Yield Option Notes
zero %, 2018 (Bermuda) $6,163,370
11,845,000 Freeport-McMoRan Copper & Gold, Inc. 144A cv. sr.
notes 8 1/4s, 2006 16,286,875
6,300,000 Providian Financial Corp. cv. sr. notes 3 1/4s, 2005 5,370,750
28,160,000 Service Corp. International cv. sub. notes 6 3/4s, 2008 27,139,200
-------------
Total Convertible Bonds and Notes (cost $47,655,070) $54,960,195
PURCHASED OPTIONS OUTSTANDING (--%) (a) EXPIRATION DATE/
CONTRACT AMOUNT STRIKE PRICE VALUE
- -------------------------------------------------------------------------------------------------------------------
$27,500 FleetBoston Financial Corp. (Put) 5/16/03/ $27.50 $31,350
25,000 Raytheon Co. (Call) 5/16/03/ $30.00 16,675
-------------
Total Purchased Options Outstanding (cost $48,875) $48,025
SHORT-TERM INVESTMENTS (4.1%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------------
$296,403,819 Short-term investments held as collateral for loaned
securities with yields ranging from 1.20% to 1.40%
and due dates ranging from May 1, 2003 to
June 23, 2003 (d) $296,298,254
482,601,713 Short-term investments held in Putnam commingled
cash account with yields ranging from 1.18% to
2.625% and due dates ranging from May 1, 2003 to
June 16, 2003 (d) 482,601,713
-------------
Total Short-Term Investments (cost $778,899,967) $778,899,967
- -------------------------------------------------------------------------------------------------------------------
Total Investments (cost $19,204,977,842) $19,317,926,188
- -------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $18,993,599,482.
(NON) Non-income-producing security.
(SEG) A portion of this security was pledged and segregated with the
custodian to cover margin requirements for futures contracts at April
30, 2003.
(R) Real Estate Investment Trust.
(d) See Note 1 to the financial statements.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American
Depositary Receipts representing ownership of foreign securities on
deposit with a custodian bank.
- ------------------------------------------------------------------------------
Futures Contracts Outstanding at April 30, 2003 (Unaudited)
Market Aggregate Face Expiration Unrealized
Value Value Date Appreciation
- ------------------------------------------------------------------------------
S&P 500 Index
(Long) $250,095,300 $239,271,312 Jun-03 $10,823,988
- ------------------------------------------------------------------------------
Written Options Outstanding at April 30, 2003 (Unaudited)
(premiums received $221,167)
Expiration Date/ Market
Contract Amount Strike Price Value
- ------------------------------------------------------------------------------
221,167 BellSouth Corp. (Call) Jun-03/$25.00 $322,771
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES
April 30, 2003 (Unaudited)
Assets
- -------------------------------------------------------------------------------------------
Investments in securities, at value, including $284,943,263 of securities
on loan (identified cost $19,204,977,842) (Note 1) $19,317,926,188
- -------------------------------------------------------------------------------------------
Cash 48,875
- -------------------------------------------------------------------------------------------
Dividends, interest and other receivables 30,580,108
- -------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 8,372,678
- -------------------------------------------------------------------------------------------
Receivable for securities sold 82,986,893
- -------------------------------------------------------------------------------------------
Receivable for variation margin (Note 1) 1,083
- -------------------------------------------------------------------------------------------
Total assets 19,439,915,825
Liabilities
- -------------------------------------------------------------------------------------------
Payable for securities purchased 62,981,557
- -------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 57,828,412
- -------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 19,214,085
- -------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 2,222,423
- -------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 885,838
- -------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,976
- -------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 5,792,230
- -------------------------------------------------------------------------------------------
Written options outstanding, at value (premiums received
$221,167) (Note 1) 322,771
- -------------------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 296,298,254
- -------------------------------------------------------------------------------------------
Other accrued expenses 763,797
- -------------------------------------------------------------------------------------------
Total liabilities 446,316,343
- -------------------------------------------------------------------------------------------
Net assets $18,993,599,482
Represented by
- -------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $21,733,150,966
- -------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 22,744,028
- -------------------------------------------------------------------------------------------
Accumulated net realized loss on investments (Note 1) (2,885,966,242)
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 123,670,730
- -------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital shares
outstanding $18,993,599,482
Computation of net asset value and offering price
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($13,757,170,228 divided by 952,020,851 shares) $14.45
- -------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $14.45)* $15.33
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($3,541,299,873 divided by 248,587,944 shares)** $14.25
- -------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($127,699,954 divided by 8,872,613 shares)** $14.39
- -------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($190,695,898 divided by 13,284,394 shares) $14.35
- -------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $14.35)* $14.87
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class R share
($997 divided by 69 shares) $14.45
- -------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($1,376,732,532 divided by 95,098,353 shares) $14.48
- -------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000
or more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
The accompanying notes are an integral part of these financial statements.
STATEMENT OF OPERATIONS
Six months ended April 30, 2003 (Unaudited)
Investment income:
- -------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $23,519) $229,877,146
- -------------------------------------------------------------------------------------------
Interest 3,339,701
- -------------------------------------------------------------------------------------------
Securities lending 104,470
- -------------------------------------------------------------------------------------------
Total investment income 233,321,317
Expenses:
- -------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 40,961,544
- -------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 14,401,911
- -------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 135,467
- -------------------------------------------------------------------------------------------
Administrative services (Note 2) 48,629
- -------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 17,079,641
- -------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 18,129,285
- -------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 633,366
- -------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 728,435
- -------------------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 1
- -------------------------------------------------------------------------------------------
Other 6,917,145
- -------------------------------------------------------------------------------------------
Total expenses 99,035,424
- -------------------------------------------------------------------------------------------
Expense reduction (Note 2) (819,022)
- -------------------------------------------------------------------------------------------
Net expenses 98,216,402
- -------------------------------------------------------------------------------------------
Net investment income 135,104,915
- -------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (1,321,071,211)
- -------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,060,480
- -------------------------------------------------------------------------------------------
Net realized gain on written options (Notes 1 and 3) 3,921,289
- -------------------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures contracts
and written options during the period 1,953,708,825
- -------------------------------------------------------------------------------------------
Net gain on investments 637,619,383
- -------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $772,724,298
- -------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS
Six months ended Year ended
April 30 October 31
2003* 2002
- -------------------------------------------------------------------------------------------------------
Decrease in net assets
- -------------------------------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------------------------------
Net investment income $135,104,915 $291,729,074
- -------------------------------------------------------------------------------------------------------
Net realized loss on investments (1,316,089,442) (1,056,052,854)
- -------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 1,953,708,825 (2,941,714,272)
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting from
operations 772,724,298 (3,706,038,052)
- -------------------------------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------------------------------
From net investment income
Class A (98,950,228) (221,847,122)
- -------------------------------------------------------------------------------------------------------
Class B (12,294,327) (31,686,180)
- -------------------------------------------------------------------------------------------------------
Class C (422,478) (863,838)
- -------------------------------------------------------------------------------------------------------
Class M (908,666) (2,166,618)
- -------------------------------------------------------------------------------------------------------
Class R (3) --
- -------------------------------------------------------------------------------------------------------
Class Y (11,247,156) (23,636,250)
- -------------------------------------------------------------------------------------------------------
From net realized long-term gain on investments
Class A -- (334,456,935)
- -------------------------------------------------------------------------------------------------------
Class B -- (136,486,795)
- -------------------------------------------------------------------------------------------------------
Class C -- (3,222,523)
- -------------------------------------------------------------------------------------------------------
Class M -- (5,774,788)
- -------------------------------------------------------------------------------------------------------
Class Y -- (28,277,539)
- -------------------------------------------------------------------------------------------------------
Decrease from capital share transactions (Note 4) (1,457,967,013) (2,770,082,056)
- -------------------------------------------------------------------------------------------------------
Total decrease in net assets (809,065,573) (7,264,538,696)
Net assets
- -------------------------------------------------------------------------------------------------------
Beginning of period 19,802,665,055 27,067,203,751
- -------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment income
of $22,744,028 and $11,461,971, respectively) $18,993,599,482 $19,802,665,055
- -------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS
(For a common share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.95 $16.86 $19.81 $21.10 $20.44 $20.87
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .11 .22 .21 .26 .28 .26
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .49 (2.60) (2.55) .45 2.32 2.15
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .60 (2.38) (2.34) .71 2.60 2.41
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.21) (.25) (.26) (.28) (.24)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.32) (.36) (1.74) (1.66) (2.60)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.10) (.53) (.61) (2.00) (1.94) (2.84)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.45 $13.95 $16.86 $19.81 $21.10 $20.44
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 4.34* (14.71) (12.15) 3.92 13.13 12.15
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,757,170 $14,095,214 $17,731,034 $20,159,272 $22,033,789 $18,814,738
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .45* .86 .82 .81 .79 .84
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .77* 1.33 1.14 1.38 1.32 1.27
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.68* 29.94 36.90 52.23 50.36 78.75
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
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 B
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.75 $16.62 $19.53 $20.82 $20.19 $20.65
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .06 .09 .07 .12 .12 .11
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .49 (2.56) (2.52) .44 2.29 2.12
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .55 (2.47) (2.45) .56 2.41 2.23
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.08) (.10) (.11) (.12) (.09)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.32) (.36) (1.74) (1.66) (2.60)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.05) (.40) (.46) (1.85) (1.78) (2.69)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.25 $13.75 $16.62 $19.53 $20.82 $20.19
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 3.99* (15.37) (12.80) 3.14 12.28 11.28
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,541,300 $4,009,396 $7,397,121 $10,163,817 $14,777,660 $15,671,371
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .83* 1.61 1.57 1.56 1.54 1.59
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .40* .56 .39 .64 .57 .52
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.68* 29.94 36.90 52.23 50.36 78.75
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
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 C
- -----------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 July 26, 1999+
operating performance (Unaudited) Year ended October 31 to October 31
- -----------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.90 $16.79 $19.75 $21.08 $22.07
- -----------------------------------------------------------------------------------------------------
Investment operations:
- -----------------------------------------------------------------------------------------------------
Net investment income (a) .06 .09 .07 .11 .02
- -----------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .48 (2.58) (2.55) .46 (.91)
- -----------------------------------------------------------------------------------------------------
Total from
investment operations .54 (2.49) (2.48) .57 (.89)
- -----------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------
From net
investment income (.05) (.08) (.12) (.16) (.10)
- -----------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.32) (.36) (1.74) --
- -----------------------------------------------------------------------------------------------------
Total distributions (.05) (.40) (.48) (1.90) (.10)
- -----------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.39 $13.90 $16.79 $19.75 $21.08
- -----------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 3.87* (15.30) (12.84) 3.16 (4.03)*
- -----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $127,700 $132,854 $168,471 $117,763 $21,555
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .83* 1.61 1.57 1.56 .41*
- -----------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .40* .57 .38 .57 .12*
- -----------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.68* 29.94 36.90 52.23 50.36
- -----------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
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 M
- ------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.86 $16.75 $19.68 $20.97 $20.33 $20.77
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .07 .13 .12 .16 .17 .16
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .48 (2.58) (2.54) .45 2.30 2.14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .55 (2.45) (2.42) .61 2.47 2.30
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.12) (.15) (.16) (.17) (.14)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.32) (.36) (1.74) (1.66) (2.60)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.06) (.44) (.51) (1.90) (1.83) (2.74)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.35 $13.86 $16.75 $19.68 $20.97 $20.33
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 4.02* (15.14) (12.58) 3.41 12.55 11.60
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $190,696 $205,097 $309,868 $387,088 $479,425 $421,616
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .70* 1.36 1.32 1.31 1.29 1.34
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .53* .82 .64 .89 .82 .77
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.68* 29.94 36.90 52.23 50.36 78.75
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(c) Includes amounts paid through brokerage service and expense offset
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 R
- ---------------------------------------------------
For the period
January 21, 2003+
Per-share to April 30
operating performance (Unaudited)
- ---------------------------------------------------
2003
- ---------------------------------------------------
Net asset value,
beginning of period $14.58
- ---------------------------------------------------
Investment operations:
- ---------------------------------------------------
Net investment income (a) .05
- ---------------------------------------------------
Net realized and unrealized
loss on investments (.13)
- ---------------------------------------------------
Total from
investment operations (.08)
- ---------------------------------------------------
Less distributions:
- ---------------------------------------------------
From net
investment income (.05)
- ---------------------------------------------------
Total distributions (.05)
- ---------------------------------------------------
Net asset value,
end of period $14.45
- ---------------------------------------------------
Total return at
net asset value (%)(b) (.54)*
- ---------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------
Net assets, end of period
(in thousands) $1
- ---------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .32*
- ---------------------------------------------------
Ratio of net investment income
to average net assets (%) .36*
- ---------------------------------------------------
Portfolio turnover (%) 16.68*
- ---------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through brokerage service and expense offset
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
- ----------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $13.98 $16.89 $19.85 $21.14 $20.47 $20.90
- ------------------------------------------------------------------------------------------------------------------
Investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (a) .13 .26 .26 .30 .33 .32
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments .49 (2.60) (2.56) .46 2.33 2.14
- ------------------------------------------------------------------------------------------------------------------
Total from
investment operations .62 (2.34) (2.30) .76 2.66 2.46
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.25) (.30) (.31) (.33) (.29)
- ------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- (.32) (.36) (1.74) (1.66) (2.60)
- ------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.57) (.66) (2.05) (1.99) (2.89)
- ------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $14.48 $13.98 $16.89 $19.85 $21.14 $20.47
- ------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 4.47* (14.46) (11.96) 4.18 13.44 12.40
- ------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,376,733 $1,360,104 $1,460,710 $1,530,454 $1,702,442 $840,080
- ------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .33* .61 .57 .56 .54 .59
- ------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .90* 1.58 1.39 1.63 1.56 1.52
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 16.68* 29.94 36.90 52.23 50.36 78.75
- ------------------------------------------------------------------------------------------------------------------
* Not annualized.
(a) Per share net investment income has been determined on the basis
of the weighted average number of shares outstanding during the period.
(b) Total return assumes dividend reinvestment.
(c) Includes amounts paid through brokerage service and expense offset
arrangements (Note 2).
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
April 30, 2003 (Unaudited)
Note 1
Significant accounting policies
The Putnam Fund for Growth and Income (the "fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified,
open-end management investment company. The fund seeks capital growth
and current income by investing primarily in a portfolio of common
stocks that offer the potential for capital growth, current income or
both.
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 January 21, 2003.
Class A shares are sold with a maximum front-end sales charge of 5.75%.
Class B shares, which convert to class A shares after approximately
eight years, do not pay a front-end sales charge but pay a higher
ongoing distribution fee than class A, 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 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),
certain college savings plans, bank trust departments and trust
companies.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class
votes as a class only with respect to its own distribution plan or other
matters on which a class vote is required by law or determined by the
Trustees. Shares of each class would receive their pro-rata share of the
net assets of the fund, if the fund were liquidated. In addition, the
Trustees declare separate dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on its
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.
Securities quoted in foreign currencies are translated into U.S. dollars
at the current exchange rate. Market quotations are not considered to be
readily available for certain debt obligations; such investments are
valued at market 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. For
foreign investments, if trading or events occurring in other markets
after the close of the principal exchange in which the securities are
traded are expected to materially affect the value of the investments,
then those investments are valued, taking into consideration these
events, at their fair value following procedures approved by the
Trustees. 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.
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 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.
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) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counter party to the contract is
unable to perform. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was
closed. Realized gains and losses on purchased options are included in
realized gains and losses on investment securities.
Futures contracts are valued at the quoted daily settlement prices
established by the exchange on which they trade. The fund and the broker
agree to exchange an amount of cash equal to the daily fluctuation in
the value of the futures contract. Such receipts or payments are known
as "variation margin." Exchange-traded options are valued at the last
sale price, or if no sales are reported, the last bid price for
purchased options and the last ask price for written options. Options
traded over-the-counter are valued using prices supplied by dealers.
Future and written option contracts outstanding at period end are listed
after The fund's portfolio.
F) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the Statement of operations. At April 30, 2003, the value of
securities loaned amounted to $284,943,263. The fund received cash
collateral of $296,298,254 which is pooled with collateral of other
Putnam funds into 45 issuers of high-grade short-term investments.
G) Line of credit The fund has entered into a committed line of credit
with certain banks. This line of credit agreement includes restrictions
that the fund maintain an asset coverage ratio of at least 300% and that
borrowings not exceed prospectus limitations. For the six months April
30, 2003, the fund had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its
taxable income within the prescribed time and otherwise comply with the
provisions of the Internal Revenue Code applicable to regulated
investment companies. It is also the intention of the fund to distribute
an amount sufficient to avoid imposition of any excise tax under Section
4982 of the Internal Revenue Code of 1986, as amended. Therefore, no
provision has been made for federal taxes on income, capital gains or
unrealized appreciation on securities held nor for excise tax on income
and capital gains.
At October 31, 2002, the fund had a capital loss carryover of
approximately $1,034,093,000 available to the extent allowed by tax law
to offset future net capital gain, if any. This capital loss carryover
will expire on October 31, 2010.
The aggregate identified cost on a tax basis is $19,740,519,937,
resulting in gross unrealized appreciation and depreciation of
$2,016,327,708 and $2,438,921,457, respectively, or net unrealized
depreciation of $422,593,749.
I) Distributions to shareholders Distributions to shareholders from net
investment income are recorded by the fund on the ex-dividend date.
Distributions from capital gains, if any, are recorded on the
ex-dividend date and paid at least annually. The amount and character of
income and gains to be distributed are determined in accordance with
income tax regulations, which may differ from generally accepted
accounting principles. Reclassifications are made to the fund's capital
accounts to reflect income and gains available for distribution (or
available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative
services and other transactions
Putnam Management is paid for management and investment advisory
services quarterly based on the average net assets of the fund. Such fee
is based on the following annual rates: 0.65% of the first $500 million
of average net assets, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion,
0.38% of the next $5 billion, 0.37% of the next $5 billion, 0.36% of the
next $5 billion, 0.35% of the next $5 billion, 0.34% of the next $5
billion, 0.33% of the next $8.5 billion and 0.32% thereafter.
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam,
LLC. Investor servicing agent functions are provided by Putnam Investor
Services, a division of PFTC.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the six months ended April 30, 2003,
the fund's expenses were reduced by $819,022 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $9,607 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 Compensation of Trustees in the Statement of
operations. Accrued pension liability is included in Payable for
compensation of Trustees in the Statement of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, 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 by it in distributing shares of
the fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate up to 0.35%, 1.00%, 1.00%, 1.00% and 1.00%
of the average net assets attributable to class A, class B, class C,
class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the six months ended April 30, 2003, Putnam Retail Management,
acting as underwriter received net commissions of $759,819 and $8,735
from the sale of class A and class M shares, respectively, and received
$3,799,562 and $9,808 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the six months ended
April 30, 2003, Putnam Retail Management, acting as underwriter received
$10,919 and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the six months ended April 30, 2003, cost of purchases and
proceeds from sales of investment securities other than short-term
investments aggregated $3,155,840,014 and $4,983,997,618, respectively.
There were no purchases and sales of U.S. government obligations.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ---------------------------------------------------------------------------
Written options
outstanding at
beginning of period 3,046,989 $1,675,844
- ---------------------------------------------------------------------------
Options opened 6,795,647 7,200,177
- ---------------------------------------------------------------------------
Options exercised (485,000) (563,906)
- ---------------------------------------------------------------------------
Options expired (2,073,830) (893,346)
- ---------------------------------------------------------------------------
Options closed (7,062,639) (7,197,602)
- ---------------------------------------------------------------------------
Written options
outstanding at
end of period 221,167 $221,167
- ---------------------------------------------------------------------------
Note 4
Capital shares
At April 30, 2003, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 65,972,789 $928,934,129
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 6,640,683 91,089,550
- ---------------------------------------------------------------------------
72,613,472 1,020,023,679
Shares repurchased (130,779,212) (1,819,099,351)
- ---------------------------------------------------------------------------
Net decrease (58,165,740) $(799,075,672)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class A Shares Amount
- ---------------------------------------------------------------------------
Shares sold 209,314,339 $3,443,291,537
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 29,773,046 514,436,954
- ---------------------------------------------------------------------------
239,087,385 3,957,728,491
Shares repurchased (280,530,851) (4,437,942,938)
- ---------------------------------------------------------------------------
Net decrease (41,443,466) $(480,214,447)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 13,229,838 $182,219,721
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 842,529 11,423,776
- ---------------------------------------------------------------------------
14,072,367 193,643,497
Shares repurchased (56,998,920) (789,474,448)
- ---------------------------------------------------------------------------
Net decrease (42,926,553) $(595,830,951)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class B Shares Amount
- ---------------------------------------------------------------------------
Shares sold 36,128,980 $592,256,879
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 8,997,908 155,961,734
- ---------------------------------------------------------------------------
45,126,888 748,218,613
Shares repurchased (198,687,318) (3,171,409,372)
- ---------------------------------------------------------------------------
Net decrease (153,560,430) $(2,423,190,759)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 1,355,245 $19,124,925
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 28,132 384,857
- ---------------------------------------------------------------------------
1,383,377 19,509,782
Shares repurchased (2,071,787) (28,953,518)
- ---------------------------------------------------------------------------
Net decrease (688,410) $(9,443,736)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class C Shares Amount
- ---------------------------------------------------------------------------
Shares sold 4,043,786 $66,395,924
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 215,464 3,760,986
- ---------------------------------------------------------------------------
4,259,250 70,156,910
Shares repurchased (4,730,574) (74,985,768)
- ---------------------------------------------------------------------------
Net decrease (471,324) $(4,828,858)
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 977,096 $13,591,989
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 63,717 869,701
- ---------------------------------------------------------------------------
1,040,813 14,461,690
Shares repurchased (2,555,568) (35,230,126)
- ---------------------------------------------------------------------------
Net decrease (1,514,755) $(20,768,436)
- ---------------------------------------------------------------------------
Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class M Shares Amount
- ---------------------------------------------------------------------------
Shares sold 2,725,764 $45,030,306
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 442,469 7,675,525
- ---------------------------------------------------------------------------
3,168,233 52,705,831
Shares repurchased (6,873,131) (110,359,549)
- ---------------------------------------------------------------------------
Net decrease (3,704,898) $(57,653,718)
- ---------------------------------------------------------------------------
Period from January 21, 2003
(commencement of operations) to
April 30, 2003
- ---------------------------------------------------------------------------
Class R Shares Amount
- ---------------------------------------------------------------------------
Shares sold 69 $1,000
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions -- 3
- ---------------------------------------------------------------------------
69 1,003
Shares repurchased -- --
- ---------------------------------------------------------------------------
Net increase 69 $1,003
- ---------------------------------------------------------------------------
Six months ended April 30, 2003
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 13,266,615 $185,166,509
- ---------------------------------------------------------------------------
Shares issued in connection
with reinvestment
of distributions 816,859 11,247,156
- ---------------------------------------------------------------------------
14,083,474 196,413,665
Shares repurchased (16,278,325) (229,262,886)
- ---------------------------------------------------------------------------
Net decrease (2,194,851) $(32,849,221)
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Year ended October 31, 2002
- ---------------------------------------------------------------------------
Class Y Shares Amount
- ---------------------------------------------------------------------------
Shares sold 39,751,536 $652,604,710
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Shares issued in connection
with reinvestment
of distributions 3,017,173 51,913,789
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42,768,709 704,518,499
Shares repurchased (31,947,187) (508,712,773)
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Net increase 10,821,522 $195,805,726
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At April 30, 2003, Putnum Investments, LLC owned 69 class R shares (100%
of class R shares outstanding), valued at $997.
FUND INFORMATION
ABOUT PUTNAM INVESTMENTS
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
TRUSTEES
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam, III
President
Charles E. Porter
Executive Vice President, Treasurer
and Principal Financial Officer
Patricia C. Flaherty
Senior Vice President
Karnig H. Durgarian
Vice President and
Principal Executive Officer
Steven D. Krichmar
Vice President and
Principal Financial Officer
Michael T. Healy
Assistant Treasurer and
Principal Accounting Officer
Brett C. Browchuk
Vice President
Charles E. Haldeman, Jr.
Vice President
Lawrence J. Lasser
Vice President
Beth S. Mazor
Vice President
Richard A. Monaghan
Vice President
Stephen M. Oristaglio
Vice President
Gordon H. Silver
Vice President
Mark C. Trenchard
Vice President
Deborah F. Kuenstner
Vice President
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Fund for
Growth and Income. It may also be used as sales literature when preceded
or accompanied by the current prospectus, which gives details of sales
charges, investment objectives, and operating policies of the fund, and
the most recent copy of Putnam's Quarterly Performance Summary and
Putnam's Quarterly Ranking Summary. For more information or to request a
prospectus, call toll free: 1-800-225-1581. 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.
Visit www.putnaminvestments.com or call a representative at 1-800-225-1581.
NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- ---------------------
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminvestments.com
SA022-88641 002/881/427/511 6/03
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
The Putnam Fund for Growth and Income
Supplement to Semiannual Report dated 4/30/03
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 4/30/03
NAV
6 months 4.47%
1 year -14.47
5 years -10.68
Annual average -2.23
10 years 123.87
Annual average 8.39
Life of fund (since class A inception, 11/6/57)
Annual average 12.18
Share value: NAV
10/31/02 $13.98
4/30/03 $14.48
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.118 -- $0.118
- ----------------------------------------------------------------------------
Please note that past performance is not indicative of future results.
More recent returns may be more or less than those shown. Returns shown
for class Y shares for periods prior to their inception are derived from
the historical performance of class A shares, and are not adjusted to
reflect the initial sales charge currently applicable to class A shares.
These returns have not been adjusted to reflect differences in operating
expenses which, for class Y shares, typically are lower than the
operating expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return and
principal value will fluctuate so your shares, when redeemed, may be
worth more or less than their original cost. See full report for
information on comparative benchmarks. If you have questions, please
consult your fund prospectus or call Putnam toll free at 1-800-752-9894.
Item 2. Code of Ethics:
- -----------------------
Not applicable
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
Not applicable
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
Not applicable
Items 5-6. [Reserved]
- ---------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. [Reserved]
- ------------------
Item 9. Controls and Procedures:
- --------------------------------
The registrant's principal executive officer and principal financial
officers 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
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.
There have been no significant changes in the registrant's internal
controls subsequent to the date of their evaluation.
Item 10. Exhibits:
- ------------------
(a) Not applicable
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act of 2002
are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: June 24, 2003
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/Karnig H. Durgarian
---------------------------
Karnig H. Durgarian
Principal Executive Officer
Date: June 24, 2003
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Financial Officer
Date: June 24, 2003
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: June 24, 2003