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:
ANNUAL REPORT ON PERFORMANCE AND OUTLOOK
10-31-04
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From the Trustees
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John A. Hill and
George Putnam, III
Dear Fellow Shareholder:
During the past several months, Putnam has introduced a number of
reforms for the benefit of shareholders, including increasing the amount
of disclosure for our funds. For example, in the spring of this year we
began showing expense and risk comparisons in shareholder reports. We
are now including in this report portfolio turnover information for your
fund, which explains how the rate at which a fund buys and sells
portfolio securities might affect its return and its taxable
distributions to shareholders. We are also including additional
disclosure about your fund's management team. Following the Outlook for
Your Fund, we list any changes in your fund's Portfolio Leader and
Portfolio Members during the prior year period, the current Portfolio
Leader's and Portfolio Members' other fund management responsibilities
at Putnam, and the dollar range of fund shares owned by these
individuals. Equity fund reports, furthermore, now also list the largest
brokerage relationships of your fund following the Notes to the
Financial Statements.
We are also pleased to announce that three new Trustees have joined your
fund's Board of Trustees. Nominated by your fund's independent Trustees,
these individuals have had outstanding careers as leaders in the
investment management industry. Myra R. Drucker is a Vice Chair of the
Board of Trustees of Sarah Lawrence College and serves as Chair of the
New York Stock Exchange (NYSE) Pension Managers Advisory Committee and
as a Trustee of Commonfund, a not-for-profit asset management firm.
Richard B. Worley is Managing Partner of Permit Capital LLC, an
investment management firm. Both Ms. Drucker and Mr. Worley are
independent Trustees (i.e., Trustees who are not "interested persons" of
your fund or its investment advisor). Charles E. Haldeman, Jr., the
third new Trustee, is President and Chief Executive Officer of Putnam
Investments.
During the period covered by the following report, The Putnam Fund for
Growth and Income delivered solid results. In the following pages, the
fund managers discuss fund performance, strategy, and their outlook for
fiscal 2005.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
December 15, 2004
Report from Fund Management
Fund highlights
* For the fiscal year ended October 31, 2004, The Putnam Fund for Growth
and Income's class A shares returned 10.63% without sales charges and
4.27% with maximum sales charges reflected.
* The fund's benchmark, the S&P 500/Barra Value Index, returned 14.46%.
* The average return for the fund's Lipper category, Large-Cap Value
Funds, was 11.58%.
* See the Performance Summary beginning on page 8 for additional fund
performance, comparative performance, and Lipper data.
Performance commentary
We are pleased to report that your fund generated solid returns in a
challenging market environment. However, our emphasis on diversification
and the resulting sector allocations caused the fund to underperform its
benchmark and the average for its Lipper category. Our weighting in the
energy sector, for example, was in keeping with the fund's traditional
target for this sector. In retrospect, we underestimated the potential
for sustained high oil prices; had we boosted exposure, the fund would
have benefited from the sector's strength to a greater extent. We also
generally maintain a larger-than-benchmark exposure to health-care
stocks, which were weak during the period, further dampening returns. In
our view, however, troubles currently dogging the pharmaceuticals
industry have not diminished the long-term attractiveness of these
stocks, and we believe they will reward shareholders in time. The fund's
large-cap bias and its exposure to consumer staples, which was larger
than the benchmark weighting, also hampered relative returns during the
period.
TOTAL RETURN FOR
PERIODS ENDED 10/31/04
Class A
(inception 11/6/57) NAV POP
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1 year 10.63% 4.27%
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5 years 3.70 -2.28
Annual average 0.73 -0.46
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10 years 150.52 136.16
Annual average 9.62 8.97
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Annual average
(life of fund) 12.30 12.16
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Data is historical. Past performance does not guarantee future results.
More recent returns may be less or more than those shown. Investment
return and principal value will fluctuate and you may have a gain or a
loss when you sell your shares. Performance assumes reinvestment of
distributions and does not account for taxes. Returns at NAV do not
reflect a sales charge of 5.75%. For the most recent month-end
performance, visit www.putnaminvestments.com. A 2% short-term trading
fee may be applied to shares exchanged or sold within 5 days of
purchase.
FUND PROFILE
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
When the fund's fiscal year began last November, riskier investments,
including smaller-capitalization stocks, were outperforming. The economy
was expanding at a rapid pace, and as a result, by early 2004, the
market had begun to anticipate a change in the Federal Reserve Board's
(the Fed's) monetary policy. Prior to the Fed's first increase in
short-term interest rates, which occurred on June 30, 2004, investors
had begun to rotate assets into sectors with lower interest-rate
sensitivity, including consumer staples and health care. Financial
stocks, which are particularly interest-rate sensitive, underperformed.
In August and September, the Fed called for additional increases in
short-term interest rates, despite signs that the economy appeared to be
slowing. In an environment of rising short-term interest rates, and with
much uncertainty over the outcome of the increasingly divisive
presidential campaign, equities traded within a narrow range and the
market hovered in a benign equilibrium. For perspective, the gap between
the highest and lowest point of the Russell 3000 Index, a broad stock
market index, for the year-to-date period through September 30, 2004,
was 9.2%. Over the same period in 2003, that range was 43%.
Market returns in the second half of the fiscal year were unimpressive.
Energy stocks were the notable exception, as increasing global demand
for energy had driven energy prices, and energy stocks, to new highs.
They remained high at the end of the reporting period. Overall, for the
fiscal year, small-cap stocks had a slight edge over large caps, and
value stocks outperformed growth stocks.
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MARKET SECTOR PERFORMANCE 12 MONTHS ENDED 10/31/04
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Equities
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S&P 500/Barra Value Index (large-company value stocks) 14.46%
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Russell 1000 Growth Index (large-company growth stocks) 3.38%
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S&P 500 Index (broad stock market) 9.42%
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MSCI World Index (global stocks) 13.25%
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Bonds
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Lehman Aggregate Bond Index (broad bond market) 5.53%
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Lehman Intermediate Treasury Bond Index
(intermediate-maturity U.S. Treasury bonds) 3.26%
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Lehman Municipal Bond Index (tax-exempt bonds) 6.02%
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These indexes provide an overview of performance in different market
sectors for the 12 months ended 10/31/04.
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Strategy overview
In pursuing the fund's objectives of growth and income, we target
high-quality stocks of large-cap companies that appear to offer
excellent value. The portfolio spreads its assets across most industry
sectors and remains highly diversified at all times. As a general rule,
the fund's management team does not make large sector bets. We will,
however, adjust sector weightings as conditions warrant, to take
advantage of market trends, or to avoid trouble spots. We made minor
changes to sector weightings during the year, but on the whole,
financials, consumer cyclicals, health-care, and consumer staples stocks
represented the largest exposures for the fund.
Portfolio turnover during the second half of the fiscal year was less
than normal for the fund, which reflected the fact that the broad stock
market was in a bit of a holding pattern and did not gain much ground.
In an environment that offers only modest gains, achieving excess
returns often comes down to the performance of individual stocks. We
believe our research points to the long-term return potential of the
fund's holdings, and we are confident that the market will come to
realize their true value in time. Noteworthy changes during the period
included increasing the fund's weighting in McDonald's and reducing
exposure to JC Penney, which had been a strong performer.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY WEIGHTINGS COMPARED]
TOP INDUSTRY WEIGHTINGS COMPARED
as of 4/30/04 as of 10/31/04
Banking 10.2% 8.8%
Oil and gas 7.1% 8.5%
Pharmaceuticals 8.8% 7.9%
Financial 7.8% 7.2%
Conglomerates 5.9% 6.2%
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
Among the fund's aerospace and defense stocks, Boeing was one of the
best performers. Orders have increased for the company's commercial
aircraft, particularly the new model 7E7, which Boeing plans to
introduce in 2008. Also, a significant portion of Boeing's business is
defense related, and this segment flourished in the past year. Boeing's
rising share price gave a boost to the fund's return.
Also, our commitment to California utility companies proved beneficial
as Edison International and Pacific Gas and Electric (PG&E) continued to
show improvement. Edison International, which owns California's
second-largest electric utility, Southern California Edison, initially
suffered as a result of the state's energy crisis. Poor financial
performance led to elimination of the dividend, and the stock price fell
precipitously. However, the Supreme Court of California approved a
rescue plan that enabled the utility to generate free cash flow and
repair its balance sheet. Thanks to more stable natural gas prices and a
more favorable regulatory situation, it is making steady progress.
Earnings have recovered dramatically, and Edison has resumed payment of
dividends on both its common and preferred shares. Pacific Gas and
Electric benefited from the same positive trends.
[GRAPHIC OMITTED: TOP HOLDINGS]
TOP HOLDINGS
(Percent of fund's net assets as of 10/31/04)
1 ExxonMobil Corp. (4.9%)
Oil and gas
2 Citigroup, Inc. (3.6%)
Financial
3 General Electric Co. (3.3%)
Conglomerates
4 Pfizer, Inc. (2.8%)
Pharmaceuticals
5 Bank of America Corp. (2.6%)
Banking
6 JPMorgan Chase & Co. (2.2%)
Investment banking/brokerage
7 Fannie Mae (2.1%)
Financial
8 American International Group, Inc. (2.0%)
Insurance
9 Altria Group, Inc. (2.0%)
Tobacco
10 Hewlett-Packard Co. (1.8%)
Computers
Footnote reads:
The fund's holdings will change over time.
Shares of Tyco International performed well during the fiscal year.
Other stocks that produced noteworthy returns included McDonald's,
Masco, and Xerox.
The fund has significant exposure to the health-care sector. Our
long-term outlook for the sector is favorable; nevertheless, holdings
from this group held back fund performance in recent months. Industry
issues, including drug patent expirations, the regulatory environment,
changes at the Food and Drug Administration (FDA), and discussions about
importing drugs from Canada, have made investors wary. While performance
has been disappointing recently, the valuations for many health-care
stocks are at or near all-time low levels, and the stocks appear to be
discounting the uncertain outlook.
Technology stocks, as a group, underperformed and created a headwind for
fund holding Hewlett-Packard, which did not live up to its potential
during the period. After its merger with Compaq Computer, it has had
some difficulties getting all of its business units to perform well
consistently. Despite these troubles, the company has begun to return
excess cash to shareholders and has initiated a share repurchase
program. We view these as very positive signs, and we remain
enthusiastic about the company's future. We believe this stock is
underappreciated and it remained in the fund's portfolio at the close of
the period.
Shares of Citigroup declined over the past six months. Some of its
operations are more volatile than others -- investment banking and
trading, for instance. These areas took a breather as economic growth
slowed during the year. Yet this financial services behemoth has a
number of diversified businesses that have helped keep it strong through
economic cycles and changing markets. Its size and complexity can be
difficult for investors to understand, which may in turn contribute to
volatility in the stock price. We believe it has the potential to reward
shareholders over the long-term.
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 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.
We believe the market environment will be positive for stocks in the
coming months. The economy is well into its recovery, and we believe
strengthening is likely to continue through the next year. However, the
rate of economic expansion appears to have slowed, so we anticipate that
corporate earnings will grow at a more moderate pace. We believe that
aggregate corporate earnings will spur increases in capital spending,
while consumer spending may weaken under the burdens of rising interest
rates and higher energy prices. Inflation has remained tame thus far,
which is a positive for businesses and the financial markets.
Nevertheless, the Fed seems intent on raising short-term interest rates,
and once again raised the discount rate one quarter of one percent on
November 10, 2004. We believe that the Fed's restrictive policy has the
potential to further weaken the dollar, relative to other currencies.
The companies that stand to benefit from a weakened dollar include the
very largest companies with global operations -- many of which fit the
criteria for the fund's portfolio. Also, given the results of the
presidential election, tax reforms favorable to investors are likely to
remain in effect. This has contributed to a trend of increasing dividend
payouts among companies that pay dividends, while other companies are
initiating dividends or share repurchasing programs. This trend can also
favor your fund, which focuses on dividend-paying stocks. In our view,
valuations of large-cap stocks are currently very attractive, and our
outlook for the fund is cautiously optimistic. We will continue to seek
the best opportunities to generate long-term total returns to help you
pursue your financial objectives.
The views expressed in this report are exclusively those of Putnam
Management. They are not meant as investment advice. The fund may invest
a portion of its assets in small and/or midsize companies. Such
investments increase the risk of greater price fluctuations.
Your fund's management
Your fund is managed by the members of the Putnam Large-Cap Value Team.
Hugh Mullin is the Portfolio Leader, and David King and Christopher
Miller are Portfolio Members of your fund. The Portfolio Leader and
Portfolio Members coordinate the team's management of the fund.
For a complete listing of the members of the Putnam Large-Cap Value
Team, including those who are not Portfolio Leaders or Portfolio Members
of your fund, visit Putnam's Individual Investor Web site at
www.putnaminvestments.com.
Fund ownership
The table below shows fund ownership, in dollar ranges, by the fund's
current Portfolio Leader and Portfolio Members. Information shown is for
the current and prior year ended November 30.
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FUND PORTFOLIO LEADER AND PORTFOLIO MEMBERS
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$1 - $10,001 - $50,001 - $100,001 - $500,001 - $1,000,001
Year $0 $10,000 $50,000 $100,000 $500,000 $1,000,000 and over
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Hugh Mullin 2004 *
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Portfolio Leader 2003 *
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David King 2004 *
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Portfolio Member 2003 *
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Christopher Miller 2004 *
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Portfolio Member 2003 *
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Other funds managed by the Portfolio Leader and Portfolio Members
David King is also the Portfolio Leader of Putnam Convertible
Income-Growth Trust, Putnam High Income Bond Fund, Putnam High Income
Opportunities Trust, and Putnam New Value Fund.
Hugh Mullin, David King, and Christopher Miller may also manage other
accounts advised by Putnam Management or an affiliate.
Changes in your fund's Portfolio Leader and Portfolio Members
Your fund's Portfolio Leader and Portfolio Members did not change during
the year ended October 31, 2004.
Performance summary
This section shows your fund's performance during its fiscal year, which
ended October 31, 2004. In accordance with regulatory requirements, we
also include performance for the most current calendar quarter-end.
Performance should always be considered in light of a fund's investment
strategy. Data represents past performance. Past performance does not
guarantee future results. More recent returns may be less or more than
those shown. Investment return and principal value will fluctuate and
you may have a gain or a loss when you sell your shares. For the most
recent month-end performance, please visit www.putnaminvestments.com.
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TOTAL RETURN FOR PERIODS ENDED 10/31/04
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Class A Class B Class C Class M Class R
(inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 10.63% 4.27% 9.77% 4.77% 9.76% 8.76% 10.06% 6.19% 10.20%
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5 years 3.70 -2.28 -0.15 -1.86 -0.16 -0.16 1.14 -2.40 2.38
Annual average 0.73 -0.46 -0.03 -0.37 -0.03 -0.03 0.23 -0.48 0.47
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10 years 150.52 136.16 132.13 132.13 132.39 132.39 138.12 129.73 144.23
Annual average 9.62 8.97 8.79 8.79 8.80 8.80 9.06 8.67 9.34
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Annual average
(life of fund) 12.30 12.16 11.25 11.25 11.46 11.46 11.54 11.45 12.01
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Performance assumes reinvestment of distributions and does not account
for taxes. Returns at public offering price (POP) for class A and M
shares reflect a sales charge of 5.75% and 3.50%, respectively (which
for class A shares does not reflect a reduction in sales charges that
went into effect on January 28, 2004; if this reduction had been in
place for all periods indicated, returns would have been higher). Class
B share returns reflect the applicable contingent deferred sales charge
(CDSC), which is 5% in the first year, declining to 1% in the sixth
year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the
first year that is eliminated thereafter. Class R share returns have no
initial sales charge or CDSC. Performance for class B, C, M, and R
shares before their inception is derived from the historical performance
of class A shares, adjusted for the applicable sales charge (or CDSC)
and higher operating expenses for such shares.
A 2% short-term trading fee may be applied to shares exchanged or sold
within 5 days of purchase.
[GRAPHIC OMITTED: worm chart CHANGE IN THE VALUE OF A $10,000 INVESTMENT]
CHANGE IN THE VALUE OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment, 10/31/94 to 10/31/04
Fund's class A S&P 500/Barra
Date shares at POP Value Index
10/31/94 9,425 10,000
10/31/95 11,595 12,303
10/31/96 14,366 15,331
10/31/97 17,950 19,885
10/31/98 20,130 22,219
10/31/99 22,772 26,443
10/31/00 23,664 29,004
10/31/01 20,788 23,663
10/31/02 17,730 19,928
10/31/03 21,348 24,874
10/31/04 $23,616 $28,471
Footnote reads:
Past performance does not indicate future results. At the end of the
same time period, a $10,000 investment in the fund's class B and class C
shares would have been valued at $23,213 and $23,239, respectively, and
no contingent deferred sales charges would apply. A $10,000 investment
in the fund's class M shares would have been valued at $23,812 ($22,973
at public offering price). A $10,000 investment in the fund's class R
shares would have been valued at $24,423. See first page of performance
section for performance calculation method.
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COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/04
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Lipper Large-
Cap Value
S&P 500/Barra Funds category
Value Index average*
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1 year 14.46% 11.58%
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5 years 7.67 11.48
Annual average 1.49 2.01
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10 years 184.71 166.40
Annual average 11.03 10.15
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Annual average
(life of fund) --+ --+
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Index and Lipper results should be compared to fund performance at net
asset value.
* Over the 1-, 5-, and 10-year periods ended 10/31/04, there were 410,
216, and 89 funds, respectively, in this Lipper category.
+ The fund's benchmark and Lipper category 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.
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PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/04
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Class A Class B Class C Class M Class R
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Distributions (number) 4 4 4 4 4
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Income $0.253 $0.121 $0.115 $0.160 $0.234
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Capital gains -- -- -- -- --
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Total $0.253 $0.121 $0.115 $0.160 $0.234
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Share value: NAV POP NAV NAV NAV POP NAV
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10/31/03 $16.57 $17.58 $16.33 $16.50 $16.46 $17.06 $16.58
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10/31/04 18.07 19.07* 17.80 17.99 17.95 18.60 18.03
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Current return
(end of period)
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Current dividend rate 1 1.11% 1.05% 0.38% 0.36% 0.60% 0.58% 1.09%
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Current 30-day
SEC yield 2 1.29 1.22 0.56 0.56 0.80 0.77 1.04
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* Reflects a reduction in sales charges that took effect on January 28,
2004.
1 Most recent distribution, excluding capital gains, annualized and
divided by NAV or POP at end of period.
2 Based only on investment income, calculated using SEC guidelines.
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TOTAL RETURN FOR PERIODS ENDED 9/30/04 (MOST RECENT CALENDAR QUARTER)
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Class A Class B Class C Class M Class R
(inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) (1/21/03)
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NAV POP NAV CDSC NAV CDSC NAV POP NAV
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1 year 15.65% 8.99% 14.82% 9.82% 14.82% 13.82% 15.08% 11.03% 15.33%
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5 years 8.33 2.11 4.38 2.59 4.31 4.31 5.69 2.00 7.01
Annual average 1.61 0.42 0.86 0.51 0.85 0.85 1.11 0.40 1.36
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10 years 149.94 135.53 132.01 132.01 132.05 132.05 137.69 129.43 143.78
Annual average 9.59 8.94 8.78 8.78 8.78 8.78 9.04 8.66 9.32
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Annual average
(life of fund) 12.30 12.16 11.26 11.26 11.46 11.46 11.54 11.46 12.02
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Understanding your fund's expenses
As a mutual fund investor, you pay ongoing expenses, such as management
fees, distribution fees (12b-1 fees), and other expenses. Using the
information below, you can estimate how these expenses affect your
investment and compare them with the expenses of other funds. You may
also pay one-time transaction expenses, including sales charges (loads)
and redemption fees, which are not shown in this section and would have
resulted in higher total expenses. For more information, see your fund's
prospectus or talk to your financial advisor.
Review your fund's expenses
The table below shows the expenses you would have paid on a $1,000
investment in The Putnam Fund for Growth and Income from May 1, 2004, to
October 31, 2004. It also shows how much a $1,000 investment would be
worth at the close of the period, assuming actual returns and expenses.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 10/31/04
- ------------------------------------------------------------------------------
Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $4.73 $8.53 $8.53 $7.27 $6.00
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Ending value (after
expenses) $1,024.80 $1,020.80 $1,020.40 $1,022.40 $1,0.23.20
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended
10/31/04. The expense ratio may differ for each share class (see the
table at the bottom of the next page). Expenses are calculated by
multiplying the expense ratio by the average account value for the
period; then multiplying the result by the number of days in the period;
and then dividing that result by the number of days in the year.
Estimate the expenses you paid
To estimate the ongoing expenses you paid for the six months ended
October 31, 2004, use the calculation method below. To find the value of
your investment on May 1, 2004, go to www.putnaminvestments.com and log
on to your account. Click on the "Transaction History" tab in your Daily
Statement and enter 05/01/2004 in both the "from" and "to" fields.
Alternatively, call Putnam at 1-800-225-1581.
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HOW TO CALCULATE THE EXPENSES YOU PAID
- -----------------------------------------------------------------------------
Total
Value of your Expenses paid expenses
investment on 5/1/04 [DIV] $1,000 X per $1,000 = paid
- -----------------------------------------------------------------------------
Example Based on a $10,000 investment in class A shares of your fund.
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$10,000 [DIV] $1,000 X $4.73 (see table above) = $47.30
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Comparing your fund's expenses with those of other funds
Using the SEC's method to compare expenses
The Securities and Exchange Commission (SEC) has established guidelines
to help investors assess fund expenses. Per these guidelines, the table
below shows your fund's expenses based on a $1,000 investment, assuming
a hypothetical 5% annualized return. You can use this information to
compare the ongoing expenses (but not transaction expenses or total
costs) of investing in the fund with those of other funds. All mutual
fund shareholder reports will provide this information to help you make
this comparison. Please note that you cannot use this information to
estimate your actual ending account balance and expenses paid during the
period.
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EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 10/31/04
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Class A Class B Class C Class M Class R
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Expenses paid per
$1,000* $4.72 $8.52 $8.52 $7.25 $5.99
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Ending value (after
expenses) $1,020.46 $1,016.69 $1,016.69 $1,017.95 $1,019.20
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* Expenses for each share class are calculated using the fund's
annualized expense ratio for each class, which represents the ongoing
expenses as a percentage of net assets for the six months ended
10/31/04. The expense ratio may differ for each share class (see the
table at the bottom of this page). Expenses are calculated by
multiplying the expense ratio by the average account value for the
period; then multiplying the result by the number of days in the period;
and then dividing that result by the number of days in the year.
Using industry averages to compare expenses
You can also compare your fund's expenses with industry averages, as
determined by Lipper, an independent fund-rating agency that ranks funds
relative to others that Lipper considers to have similar investment
styles or objectives. The expense ratio for each share class shown below
indicates how much of your fund's net assets have been used to pay
ongoing expenses during the period.
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EXPENSE RATIO COMPARISONS USING ANNUALIZED DATA
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Class A Class B Class C Class M Class R
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Your fund's annualized
expense ratio+ 0.93% 1.68% 1.68% 1.43% 1.18%
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Average annualized expense
ratio for Lipper peer
group++ 1.28% 2.03% 2.03% 1.78% 1.53%
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+ For the fund's most recent fiscal half year; may differ from expense
ratios based on one-year data in the financial highlights.
++ Average of the expenses of front-end load funds viewed by Lipper as
having the same investment classification or objective as the fund, as of
9/30/04, calculated in accordance with Lipper's standard reporting
methodology for comparing expenses within a given universe (excluding
12b-1 fees and without giving effect to any expense offset and brokerage
service arrangements that may reduce fund expenses). To facilitate
comparison, Putnam has adjusted this average to reflect the 12b-1 fees
carried by each class of shares. The peer group may include funds that are
significantly larger or smaller than the fund, which may limit the
comparability of the fund's expenses to the Lipper average.
Understanding your fund's portfolio turnover
Putnam funds are actively managed by teams of experts who buy and sell
securities based on intensive analysis of companies, industries,
economies, and markets. Portfolio turnover is a measure of how often a
fund's managers buy and sell securities for your fund. A portfolio
turnover of 100%, for example, means that the managers sold and replaced
securities valued at 100% of a fund's assets within a one-year period.
Funds with high turnover may be more likely to generate capital gains
and dividends that must be distributed to shareholders as taxable
income. High turnover may also cause a fund to pay more brokerage
commissions and other transaction costs, which may detract from
performance.
Funds that invest in bonds may have higher turnover than funds that
invest only in stocks. Short-term bond funds tend to have higher
turnover than longer-term bond funds, because shorter-term bonds will
mature or be sold more frequently than longer-term bonds. You can use
the table below to compare your fund's turnover with the average
turnover for funds in its Lipper category.
- ------------------------------------------------------------------------------
TURNOVER COMPARISONS
percentage of holdings that change every year
- ------------------------------------------------------------------------------
2004 2003 2002 2001 2000
- ------------------------------------------------------------------------------
The Putnam Fund for
Growth and Income 29% 33% 30% 37% 52%
- ------------------------------------------------------------------------------
Lipper Large-Cap Value
Funds category
average 78% 77% 67% 72% 75%
- ------------------------------------------------------------------------------
Turnover data for the fund is calculated based on the fund's fiscal-year
period, which ends on October 31. Turnover data for the fund's Lipper
category is calculated based on the average of the turnover of each fund
in the category for its fiscal year ended during the indicated year.
Fiscal years vary across funds in the Lipper category, which may limit
the comparability of the fund's portfolio turnover rate to the Lipper
average. Comparative data for 2004 is based on information available as
of 9/30/04.
Risk comparison
As part of new initiatives to enhance disclosure, we are including a
risk comparison to help you understand how your fund compares with other
funds. The comparison utilizes a risk measure developed by Morningstar,
an independent fund-rating agency. This risk measure is referred to as
the fund's Overall Morningstar Risk.
[GRAPHIC OMITTED: chart MORNINGSTAR [REGISTRATION MARK] RISK]
MORNINGSTAR [REGISTRATION MARK] RISK
Fund's Overall
Morningstar Risk 2.29
U.S. stock
fund average 3.57
0% INCREASING RISK 100%
Your fund's Overall Morningstar Risk is shown alongside that of the
average fund in its broad asset class, as determined by Morningstar. The
risk bar broadens the comparison by translating the fund's Overall
Morningstar Risk into a percentile, which is based on the fund's ranking
among all funds rated by Morningstar as of September 30, 2004. A higher
Overall Morningstar Risk generally indicates that a fund's monthly
returns have varied more widely.
Morningstar determines a fund's Overall Morningstar Risk by assessing
variations in the fund's monthly returns -- with an emphasis on downside
variations -- over 3-, 5-, and 10-year periods, if available. Those
measures are weighted and averaged to produce the fund's Overall
Morningstar Risk. The information shown is provided for the fund's class
A shares only; information for other classes may vary. Overall
Morningstar Risk is based on historical data and does not indicate
future results. Morningstar does not purport to measure the risk
associated with a current investment in a fund, either on an absolute
basis or on a relative basis. Low Overall Morningstar Risk does not mean
that you cannot lose money on an investment in a fund. Copyright 2004
Morningstar, Inc. All Rights Reserved. The information contained herein
(1) is proprietary to Morningstar and/or its content providers; (2) may
not be copied or distributed; and (3) is not warranted to be accurate,
complete, or timely. Neither Morningstar nor its content providers are
responsible for any damages or losses arising from any use of this
information.
Terms and definitions
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested
all distributions in the fund.
Net asset value (NAV) is the price, or value, of one share of a mutual
fund, without a sales charge. NAVs fluctuate with market conditions. NAV
is calculated by dividing the net assets of each class of shares by the
number of outstanding shares in the class.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the 5.75% maximum sales charge for class A
shares (since reduced to 5.25%) and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time
of the redemption of class B or C shares and assumes redemption at the
end of the period. Your fund's class B CDSC declines from a 5% maximum
during the first year to 1% during the sixth year. After the sixth year,
the CDSC no longer applies. The CDSC for class C shares is 1% for one
year after purchase.
Class A shares are generally subject to an initial sales charge and no
sales charge on redemption (except on certain redemptions of shares
bought without an initial sales charge).
Class B shares may be subject to a sales charge upon redemption.
Class C shares are not subject to an initial sales charge and are
subject to a contingent deferred sales charge only if the shares are
redeemed during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption (except on certain
redemptions of shares bought without an initial sales charge).
Class R shares are not subject to an initial sales charge or CDSC and
are available only to certain defined contribution plans.
Comparative indexes
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 10 years.
Lehman Municipal Bond Index is an unmanaged index of long-term
fixed-rate investment-grade tax-exempt bonds.
Morgan Stanley Capital International (MSCI) World Index is an unmanaged
index of developed and emerging markets.
Russell 1000 Growth Index is an unmanaged index of those companies in
the Russell 1000 Index chosen for their growth orientation.
S&P 500/Barra Value Index is an unmanaged index of
capitalization-weighted stocks chosen for their value orientation.
S&P 500 Index is an unmanaged index of common stock performance.
Indexes assume reinvestment of all distributions and do not account for
fees. Securities and performance of a fund and an index will differ. You
cannot invest directly in an index.
Lipper is a third-party industry ranking entity that ranks funds
(without sales charges) with similar current investment styles or
objectives as determined by Lipper. Lipper category averages reflect
performance trends for funds within a category and are based on results
at net asset value.
Putnam's policy on confidentiality
In order to conduct business with our shareholders, we must obtain
certain personal information such as account holders' addresses,
telephone numbers, Social Security numbers, and the names of their
financial advisors. We use this information to assign an account number
and to help us maintain accurate records of transactions and account
balances.
It is our policy to protect the confidentiality of your information,
whether or not you currently own shares of our funds, and in particular,
not to sell information about you or your accounts to outside marketing
firms. We have safeguards in place designed to prevent unauthorized
access to our computer systems and procedures to protect personal
information from unauthorized use.
Under certain circumstances, we share this information with outside
vendors who provide services to us, such as mailing and proxy
solicitation. In those cases, the service providers enter into
confidentiality agreements with us, and we provide only the information
necessary to process transactions and perform other services related to
your account. We may also share this information with our Putnam
affiliates to service your account or provide you with information about
other Putnam products or services. It is also our policy to share
account information with your financial advisor, if you've listed one on
your Putnam account.
If you would like clarification about our confidentiality policies or
have any questions or concerns, please don't hesitate to contact us at
1-800-225-1581, Monday through Friday, 8:30 a.m. to 7:00 p.m., or
Saturdays from 9:00 a.m. to 5:00 p.m. Eastern Time.
Proxy voting
Putnam is committed to managing our mutual funds in the best interests
of our shareholders. The Putnam funds' proxy voting guidelines and
procedures, as well as information regarding how your fund voted proxies
relating to portfolio securities during the 12-month period ended June
30, 2004, are available on the Putnam Individual Investor Web site,
www.putnaminvestments.com/individual, and on the SEC's Web site,
www.sec.gov. If you have questions about finding forms on the SEC's Web
site, you may call the SEC at 1-800-SEC-0330. You may also obtain the
Putnam funds' proxy voting guidelines and procedures at no charge by
calling Putnam's Shareholder Services at 1-800-225-1581.
Fund portfolio holdings
For periods ending on or after July 9, 2004, the fund will file a
complete schedule of its portfolio holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. Shareholders may
obtain the fund's Forms N-Q on the SEC's Web site at www.sec.gov. In
addition, the fund's Forms N-Q may be reviewed and copied at the SEC's
public reference room in Washington, D.C. You may call the SEC at
1-800-SEC-0330 for information about the SEC's Web site or the operation
of the public reference room.
A guide to the financial statements
These sections of the report, as well as the accompanying Notes,
preceded by the Report of Independent Registered Public Accounting Firm,
constitute the fund's financial statements.
The fund's portfolio lists all the fund's investments and their values
as of the last day of the reporting period. Holdings are organized by
asset type and industry sector, country, or state to show areas of
concentration and diversification.
Statement of assets and liabilities shows how the fund's net assets and
share price are determined. All investment and noninvestment assets are
added together. Any unpaid expenses and other liabilities are
subtracted from this total. The result is divided by the number of
shares to determine the net asset value per share, which is calculated
separately for each class of shares. (For funds with preferred shares,
the amount subtracted from total assets includes the net assets
allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss.
This is done by first adding up all the fund's earnings -- from
dividends and interest income -- and subtracting its operating expenses
to determine net investment income (or loss). Then, any net gain or
loss the fund realized on the sales of its holdings -- as well as any
unrealized gains or losses over the period -- is added to or subtracted
from the net investment result to determine the fund's net gain or loss
for the fiscal year.
Statement of changes in net assets shows how the fund's net assets were
affected by the fund's net investment gain or loss, by distributions to
shareholders, and by changes in the number of the fund's shares. It
lists distributions and their sources (net investment income or realized
capital gains) over the current reporting period and the most recent
fiscal year-end. The distributions listed here may not match the sources
listed in the Statement of operations because the distributions are
determined on a tax basis and may be paid in a different period from the
one in which they were earned.
Financial highlights provide an overview of the fund's investment
results, per-share distributions, expense ratios, net investment
income ratios, and portfolio turnover in one summary table, reflecting
the five most recent reporting periods. In a semiannual report, the
highlight table also includes the current reporting period. For open-end
funds, a separate table is provided for each share class.
Report of Independent Registered Public Accounting Firm
To the Trustees and Shareholders of
The Putnam Fund for Growth and Income
In our opinion, the accompanying statement of assets and liabilities,
including the fund's portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of The Putnam
Fund for Growth and Income (the "fund") at October 31, 2004, and the
results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 2004, by correspondence
with the custodian, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 8, 2004
The fund's portfolio
October 31, 2004
Common stocks (99.1%) (a)
Number of shares Value
Advertising and Marketing Services (0.2%)
- -------------------------------------------------------------------------------
453,600 Omnicom Group, Inc. (S) $35,789,040
Aerospace and Defense (3.3%)
- -------------------------------------------------------------------------------
4,273,192 Boeing Co. (The) 213,232,281
2,989,174 Lockheed Martin Corp. 164,673,596
609,800 Northrop Grumman Corp. 31,557,150
2,374,100 Raytheon Co. 86,607,168
929,800 United Technologies Corp. 86,304,036
--------------
582,374,231
Airlines (0.3%)
- -------------------------------------------------------------------------------
3,685,700 Southwest Airlines Co. 58,123,489
Automotive (0.7%)
- -------------------------------------------------------------------------------
3,923,800 Ford Motor Co. (S) 51,127,114
1,444,587 Lear Corp. 77,892,131
--------------
129,019,245
Banking (8.8%)
- -------------------------------------------------------------------------------
10,278,800 Bank of America Corp. 460,387,452
2,527,609 Bank of New York Co., Inc. (The) 82,046,188
278,400 Commerce Bancorp, Inc. (S) 16,492,416
2,197,600 Fifth Third Bancorp (S) 108,099,944
229,900 M&T Bank Corp. (S) 23,679,700
540,555 Sovereign Bancorp, Inc. (S) 11,703,016
2,958,500 State Street Corp. (S) 133,280,425
116,200 Synovus Financial Corp. (S) 3,159,478
10,145,960 U.S. Bancorp 290,275,916
2,197,440 Wachovia Corp. (S) 108,136,022
946,200 Washington Mutual, Inc. 36,627,402
4,552,743 Wells Fargo & Co. 271,889,812
--------------
1,545,777,771
Basic Materials (0.1%)
- -------------------------------------------------------------------------------
456,000 Vulcan Materials Co. 22,699,680
Beverage (2.0%)
- -------------------------------------------------------------------------------
6,880,694 Coca-Cola Co. (The) 279,769,018
3,215,302 Coca-Cola Enterprises, Inc. 67,231,965
--------------
347,000,983
Biotechnology (0.1%)
- -------------------------------------------------------------------------------
361,800 Amgen, Inc. (NON) 20,550,240
Building Materials (1.1%)
- -------------------------------------------------------------------------------
5,465,900 Masco Corp. 187,261,734
Cable Television (0.1%)
- -------------------------------------------------------------------------------
596,060 Liberty Media International, Inc.
Class A (NON) 21,487,963
Chemicals (3.2%)
- -------------------------------------------------------------------------------
869,300 Avery Dennison Corp. (S) 52,888,212
5,588,436 Dow Chemical Co. (The) 251,144,314
2,111,700 E.I. du Pont de Nemours & Co. 90,528,579
1,388,600 Hercules, Inc. (NON) (S) 19,829,208
1,559,824 PPG Industries, Inc. (S) 99,438,780
1,002,300 Rohm & Haas Co. 42,487,497
--------------
556,316,590
Coal (0.1%)
- -------------------------------------------------------------------------------
263,800 Peabody Energy Corp. 16,825,164
Commercial and Consumer Services (0.5%)
- -------------------------------------------------------------------------------
397,700 Cintas Corp. (S) 17,156,778
9,425,800 Service Corporation Intl. (NON) 62,304,538
--------------
79,461,316
Computers (2.8%)
- -------------------------------------------------------------------------------
16,731,630 Hewlett-Packard Co. 312,212,216
1,223,100 IBM Corp. 109,773,225
245,800 Lexmark International, Inc. (NON) 20,428,438
10,579,300 Sun Microsystems, Inc. (NON) 47,924,229
--------------
490,338,108
Conglomerates (6.2%)
- -------------------------------------------------------------------------------
16,573 Berkshire Hathaway, Inc. Class B
(NON) 46,470,692
16,944,083 General Electric Co. (S) 578,132,112
2,940,727 Honeywell International, Inc. 99,043,685
1,236,915 SPX Corp. (S) 47,435,690
9,848,349 Tyco International, Ltd. (Bermuda) 306,776,071
--------------
1,077,858,250
Consumer Finance (1.7%)
- -------------------------------------------------------------------------------
550,000 Capital One Financial Corp. 40,568,000
2,940,900 Countrywide Financial Corp. 93,902,937
5,330,174 MBNA Corp. 136,612,360
1,289,600 Providian Financial Corp. (NON) 20,053,280
--------------
291,136,577
Consumer Goods (2.4%)
- -------------------------------------------------------------------------------
1,713,300 Colgate-Palmolive Co. 76,447,446
520,000 Energizer Holdings, Inc. (NON) (S) 24,143,600
127,585 Fortune Brands, Inc. 9,290,740
1,032,500 Gillette Co. (The) 42,828,100
452,500 International Flavors & Fragrances,
Inc. 17,670,125
950,700 Kimberly-Clark Corp. 56,728,269
321,733 Newell Rubbermaid, Inc. (S) 6,936,563
3,635,966 Procter & Gamble Co. 186,088,740
--------------
420,133,583
Containers (0.2%)
- -------------------------------------------------------------------------------
777,500 Ball Corp. 30,983,375
564,900 Owens-Illinois, Inc. (NON) 10,467,597
--------------
41,450,972
Electric Utilities (3.3%)
- -------------------------------------------------------------------------------
311,700 Dominion Resources, Inc. (S) 20,048,544
1,122,900 Duke Energy Corp. (S) 27,544,737
1,178,100 Edison International 35,932,050
720,000 Entergy Corp. 47,059,200
3,072,402 Exelon Corp. 121,728,567
435,000 FPL Group, Inc. 29,971,500
317,200 Great Plains Energy, Inc. (S) 9,037,028
4,515,743 PG&E Corp. (NON) 144,684,406
1,015,500 PPL Corp. 52,806,000
1,243,379 Progress Energy, Inc. 51,351,553
2,636,700 Sierra Pacific Resources (NON) (S) 25,312,320
367,400 XCEL Energy, Inc. (S) 6,282,540
--------------
571,758,445
Electrical Equipment (0.6%)
- -------------------------------------------------------------------------------
1,179,800 Emerson Electric Co. 75,566,190
486,534 Rockwell Automation, Inc. (S) 20,283,602
--------------
95,849,792
Electronics (1.9%)
- -------------------------------------------------------------------------------
5,150,600 Intel Corp. 114,652,356
969,800 Jabil Circuit, Inc. (NON) 23,575,838
2,280,900 Micron Technology, Inc. (NON) (S) 27,781,362
7,162,300 Motorola, Inc. 123,621,298
6,477,300 Solectron Corp. (NON) (S) 33,811,506
718,300 Vishay Intertechnology, Inc. (NON) 9,287,619
--------------
332,729,979
Energy (0.5%)
- -------------------------------------------------------------------------------
663,500 GlobalSantaFe Corp. (Cayman Islands) 19,573,250
588,100 Halliburton Co. (S) 21,783,224
435,000 Noble Corp. (Cayman Islands) (NON)
(S) 19,870,800
582,200 Transocean, Inc. (Cayman Islands)
(NON) (S) 20,522,550
393,500 Varco International, Inc. (NON) 10,892,080
--------------
92,641,904
Financial (7.2%)
- -------------------------------------------------------------------------------
14,387,678 Citigroup, Inc. 638,381,273
5,366,200 Fannie Mae 376,438,930
3,593,945 Freddie Mac 239,356,737
--------------
1,254,176,940
Food (1.1%)
- -------------------------------------------------------------------------------
1,054,000 General Mills, Inc. 46,639,500
1,701,654 H.J. Heinz Co. 61,855,123
947,700 Kellogg Co. (S) 40,751,100
450,752 Sara Lee Corp. 10,493,507
2,296,000 Tyson Foods, Inc. Class A 33,292,000
--------------
193,031,230
Forest Products and Packaging (1.2%)
- -------------------------------------------------------------------------------
499,500 Boise Cascade Corp. 14,745,240
1,370,000 International Paper Co. 52,758,700
667,500 Plum Creek Timber Company, Inc. 24,223,575
1,696,830 Smurfit-Stone Container Corp. (NON)
(S) 29,456,969
1,331,767 Weyerhaeuser Co. 83,421,885
--------------
204,606,369
Gaming & Lottery (0.3%)
- -------------------------------------------------------------------------------
934,758 Harrah's Entertainment, Inc. (S) 54,702,038
Health Care Services (2.3%)
- -------------------------------------------------------------------------------
251,700 AmerisourceBergen Corp. 13,853,568
2,401,889 Cardinal Health, Inc. 112,288,311
1,528,335 CIGNA Corp. 96,988,139
876,077 Express Scripts, Inc. Class A (NON) 56,068,928
258,179 Health Net, Inc. (NON) (S) 6,263,423
145,500 Humana, Inc. (NON) 2,786,325
206,300 Laboratory Corp. of America Holdings
(NON) 9,448,540
2,211,500 McKesson Corp. 58,958,590
233,000 Medco Health Solutions, Inc. (NON) 7,901,030
632,662 UnitedHealth Group, Inc. 45,804,729
--------------
410,361,583
Homebuilding (0.2%)
- -------------------------------------------------------------------------------
915,200 Lennar Corp. (S) 41,165,696
Household Furniture and Appliances (0.3%)
- -------------------------------------------------------------------------------
886,307 Whirlpool Corp. 52,070,536
Industrial (0.4%)
- -------------------------------------------------------------------------------
788,000 3M Co. 61,125,160
Insurance (6.0%)
- -------------------------------------------------------------------------------
3,660,162 ACE, Ltd. (Cayman Islands) (S) 139,305,766
1,264,800 Allstate Corp. (S) 60,824,232
5,834,877 American International Group, Inc. 354,235,383
294,200 Chubb Corp. (The) 21,220,646
588,407 Fidelity National Financial, Inc. 22,206,480
945,600 Hartford Financial Services Group,
Inc. (The) (S) 55,298,688
1,462,900 Lincoln National Corp. (S) 64,075,020
3,513,700 MetLife, Inc. 134,750,395
391,800 Old Republic International Corp. 9,148,530
3,273,313 St. Paul Travelers Companies, Inc.
(The) 111,161,709
1,020,200 XL Capital, Ltd. Class A (Cayman
Islands) (S) 73,964,500
--------------
1,046,191,349
Investment Banking/Brokerage (4.3%)
- -------------------------------------------------------------------------------
101,688 Goldman Sachs Group, Inc. (The) 10,004,065
247,600 Janus Capital Group, Inc. (S) 3,775,900
10,166,891 JPMorgan Chase & Co. (S) 392,441,993
93,800 Lehman Brothers Holdings, Inc. 7,705,670
4,442,700 Merrill Lynch & Co., Inc. 239,639,238
1,907,235 Morgan Stanley 97,440,636
--------------
751,007,502
Leisure (0.1%)
- -------------------------------------------------------------------------------
431,800 Harley-Davidson, Inc. 24,858,726
Lodging/Tourism (0.6%)
- -------------------------------------------------------------------------------
3,624,300 Cendant Corp. 74,624,337
504,800 Marriott International, Inc. Class A 27,506,552
--------------
102,130,889
Machinery (1.3%)
- -------------------------------------------------------------------------------
2,243,863 Ingersoll-Rand Co. Class A (Bermuda) 153,569,984
947,200 Parker-Hannifin Corp. (S) 66,900,736
--------------
220,470,720
Manufacturing (0.1%)
- -------------------------------------------------------------------------------
568,500 Dover Corp. 22,324,995
Media (1.9%)
- -------------------------------------------------------------------------------
3,232,700 Liberty Media Corp. Class A (NON) 28,835,684
6,868,300 Time Warner, Inc. (NON) 114,288,512
7,742,709 Walt Disney Co. (The) 195,271,121
--------------
338,395,317
Medical Technology (--%)
- -------------------------------------------------------------------------------
211,800 Baxter International, Inc. 6,514,968
Metals (1.1%)
- -------------------------------------------------------------------------------
5,241,700 Alcoa, Inc. 170,355,250
642,308 Barrick Gold Corp. (Canada) 14,458,353
--------------
184,813,603
Natural Gas Utilities (0.1%)
- -------------------------------------------------------------------------------
276,026 Sempra Energy 9,257,912
722,189 Southern Union Co. (NON) (S) 15,866,492
--------------
25,124,404
Oil & Gas (8.5%)
- -------------------------------------------------------------------------------
395,300 Amerada Hess Corp. (S) 31,904,663
5,619,298 ChevronTexaco Corp. 298,159,952
380,000 ConocoPhillips 32,037,800
413,132 Devon Energy Corp. 30,559,374
17,371,417 ExxonMobil Corp. 855,021,145
3,000,199 Marathon Oil Corp. 114,337,584
401,338 Occidental Petroleum Corp. 22,406,701
380,600 Sunoco, Inc. 28,301,416
1,928,762 Unocal Corp. 80,525,814
--------------
1,493,254,449
Pharmaceuticals (7.9%)
- -------------------------------------------------------------------------------
5,325,534 Abbott Laboratories (S) 227,027,514
3,283,796 Bristol-Myers Squibb Co. (S) 76,939,340
844,096 Eli Lilly Co. 46,349,311
5,167,700 Johnson & Johnson 301,690,326
3,685,400 King Pharmaceuticals, Inc. (NON) (S) 40,207,714
2,365,100 Merck & Co., Inc. 74,051,281
17,244,915 Pfizer, Inc. 499,240,289
2,839,332 Wyeth 112,579,514
--------------
1,378,085,289
Photography/Imaging (1.0%)
- -------------------------------------------------------------------------------
12,055,382 Xerox Corp. (NON) (S) 178,057,992
Publishing (0.2%)
- -------------------------------------------------------------------------------
439,700 McGraw-Hill Companies, Inc. (The) 37,924,125
Railroads (1.2%)
- -------------------------------------------------------------------------------
607,500 Canadian National Railway Co.
(Canada) 32,835,375
1,025,600 Norfolk Southern Corp. 34,819,120
2,177,401 Union Pacific Corp. 137,110,941
--------------
204,765,436
Real Estate (0.1%)
- -------------------------------------------------------------------------------
673,500 Equity Office Properties Trust (R) 18,938,820
Regional Bells (2.6%)
- -------------------------------------------------------------------------------
5,091,735 BellSouth Corp. 135,796,572
2,674,700 SBC Communications, Inc. 67,562,922
6,522,900 Verizon Communications, Inc. 255,045,390
--------------
458,404,884
Restaurants (1.6%)
- -------------------------------------------------------------------------------
853,600 Darden Restaurants, Inc. 20,913,200
8,891,600 McDonald's Corp. 259,190,140
--------------
280,103,340
Retail (3.8%)
- -------------------------------------------------------------------------------
282,596 AutoZone, Inc. (NON) 23,119,179
546,120 Federated Department Stores, Inc. 27,551,754
5,743,877 Home Depot, Inc. (The) 235,958,467
1,253,677 JC Penney Companies, Inc. (Holding
Co.) (S) 43,364,687
2,711,900 Limited Brands, Inc. 67,200,882
1,335,777 Lowe's Companies, Inc. 75,177,530
505,000 May Department Stores Co. (The) 13,160,300
3,898,928 Office Depot, Inc. (NON) 63,123,644
6,081,000 Rite Aid Corp. (NON) (S) 22,621,320
420,600 Ross Stores, Inc. 11,049,162
789,439 Staples, Inc. 23,477,916
868,600 Supervalu, Inc. (S) 25,615,014
1,605,000 TJX Companies, Inc. (The) 38,487,900
--------------
669,907,755
Software (0.4%)
- -------------------------------------------------------------------------------
381,477 Amdocs, Ltd. (Guernsey) (NON) 9,594,147
2,376,300 Microsoft Corp. 66,512,637
--------------
76,106,784
Technology Services (0.4%)
- -------------------------------------------------------------------------------
665,000 Automatic Data Processing, Inc. 28,854,349
965,500 Fiserv, Inc. (NON) (S) 34,313,870
--------------
63,168,219
Textiles (0.1%)
- -------------------------------------------------------------------------------
570,000 Liz Claiborne, Inc. 23,301,600
Tobacco (2.0%)
- -------------------------------------------------------------------------------
7,303,787 Altria Group, Inc. 353,941,518
Toys (0.5%)
- -------------------------------------------------------------------------------
5,094,020 Mattel, Inc. (S) 89,196,290
Waste Management (0.2%)
- -------------------------------------------------------------------------------
1,053,300 Waste Management, Inc. 29,997,984
--------------
Total Common stocks
(cost $14,557,648,702) $17,364,811,566
Convertible preferred stocks (0.5%) (a)
Number of shares Value
- -------------------------------------------------------------------------------
764,400 Ford Motor Company Capital Trust II
$3.25 cum. cv. pfd. $38,506,650
536,100 Xerox Corp. 144A $3.75 cv. pfd. 43,893,188
--------------
Total Convertible preferred stocks
(cost $64,350,763) $82,399,838
Purchased options outstanding (--%) (a) (cost $289,933)
Expiration date/
Contract amount strike price Value
- -------------------------------------------------------------------------------
115,811 Fannie Mae (Call) Nov 04/$66.58 $470,413
Short-term investments (2.0%) (a)
Principal amount Value
- -------------------------------------------------------------------------------
$10,000,000 Sheffield Receivables Corp. for an
effective yield of 1.83%, November
15, 2004 $9,992,883
29,607,999 Interest in $500,000,000 joint
tri-party repurchase agreement
dated October 29, 2004 with Banc of
America Securities, LLC due
November 1, 2004 with respect to
various U.S. government
obligations-- maturity value of
$29,612,588 for an effective yield
of 1.86% (collateralized by Fannie
Mae securities with yields ranging
from 5.00% to 6.05% and due dates
ranging from 12/1/08 to 6/1/34 and
Freddie Mac securities with yields
ranging from 4.50% to 5.50% and due
dates ranging from 6/1/34 to
10/1/34) 29,607,999
235,859,181 Short-term investments held as
collateral for loaned securities
with yields ranging from 1.75% to
2.03% and due dates ranging from
November 1, 2004 to December 6,
2004 (d) 235,780,497
71,733,961 Putnam Prime Money Market Fund (e) 71,733,961
--------------
Total Short-term investments
(cost $347,115,340) $347,115,340
- -------------------------------------------------------------------------------
Total Investments
(cost $14,969,404,738) $17,794,797,157
- -------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $17,518,616,852.
(NON) Non-income-producing security.
(R) Real Estate Investment Trust.
(S) Securities on loan, in part or in entirety, at October 31, 2004.
(d) See Note 1 to the financial statements.
(e) See Note 5 to the financial statements regarding investments in
Putnam Prime Money Market Fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
Written options outstanding at October 31, 2004
(premium received $237,517)
Contract Expiration date/
amount strike price Value
- -------------------------------------------------------------------------------
115,811 Freddie Mac (Put) Nov 04/$65.52 $74,351
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of assets and liabilities
October 31, 2004
Assets
- -------------------------------------------------------------------------------
Investment in securities, at value, including $227,970,673 of securities
on loan (Note 1):
- -------------------------------------------------------------------------------
Unaffiliated issuers (identified cost $14,897,670,777) $17,723,063,196
- -------------------------------------------------------------------------------
Affiliated issuers (identified cost $71,733,961) (Note 5) 71,733,961
- -------------------------------------------------------------------------------
Cash 91,630
- -------------------------------------------------------------------------------
Dividends, interest and other receivables 27,943,474
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,046,960
- -------------------------------------------------------------------------------
Receivable for securities sold 58,917,379
- -------------------------------------------------------------------------------
Total assets 17,885,796,600
Liabilities
- -------------------------------------------------------------------------------
Payable for securities purchased 51,322,666
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 42,439,707
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Notes 2 and 5) 19,267,152
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 8,748,635
- -------------------------------------------------------------------------------
Payable for Trustee compensation and expenses (Note 2) 1,152,415
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 14,219
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 5,604,506
- -------------------------------------------------------------------------------
Written options outstanding, at value (premiums received
$237,517) (Note 1) 74,351
- -------------------------------------------------------------------------------
Collateral on securities loaned, at value (Note 1) 235,780,497
- -------------------------------------------------------------------------------
Other accrued expenses 2,775,600
- -------------------------------------------------------------------------------
Total liabilities 367,179,748
- -------------------------------------------------------------------------------
Net assets $17,518,616,852
Represented by
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $15,881,224,534
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 4,057,838
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments and foreign
currency transactions (Note 1) (1,192,221,105)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 2,825,555,585
- -------------------------------------------------------------------------------
Total -- Representing net assets applicable to capital
shares outstanding $17,518,616,852
Computation of net asset value and offering price
- -------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($12,154,651,635 divided by 672,760,673 shares) $18.07
- -------------------------------------------------------------------------------
Offering price per class A share (100/94.75 of $18.07)* $19.07
- -------------------------------------------------------------------------------
Net asset value and offering price per class B share
($3,364,806,546 divided by 189,044,354 shares)** $17.80
- -------------------------------------------------------------------------------
Net asset value and offering price per class C share
($109,312,038 divided by 6,075,368 shares)** $17.99
- -------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($145,209,046 divided by 8,091,232 shares) $17.95
- -------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $17.95)* $18.60
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class R share ($191,477 divided by 10,619 shares) $18.03
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price per
class Y share ($1,744,446,110 divided by 96,355,888 shares) $18.10
- -------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
The accompanying notes are an integral part of these financial
statements.
Statement of operations
Year ended October 31, 2004
Investment income:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $111,597) $397,500,690
- -------------------------------------------------------------------------------
Interest (including interest income of $391,280 from
investments in affiliated issuers) (Note 5) 2,249,976
- -------------------------------------------------------------------------------
Securities lending 240,537
- -------------------------------------------------------------------------------
Total investment income 399,991,203
Expenses:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 80,806,758
- -------------------------------------------------------------------------------
Investor servicing fees (Note 2) 36,957,873
- -------------------------------------------------------------------------------
Custodian fees (Note 2) 705,288
- -------------------------------------------------------------------------------
Trustee compensation and expenses (Note 2) 254,823
- -------------------------------------------------------------------------------
Administrative services (Note 2) 80,759
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 32,705,631
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 35,976,738
- -------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 1,188,064
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,219,188
- -------------------------------------------------------------------------------
Distribution fees -- Class R (Note 2) 202
- -------------------------------------------------------------------------------
Other 5,807,218
- -------------------------------------------------------------------------------
Non-recurring costs (Notes 2 and 6) 826,556
- -------------------------------------------------------------------------------
Costs assumed by Manager (Notes 2 and 6) (826,556)
- -------------------------------------------------------------------------------
Fees waived and reimbursed by Manager (Note 5) (75,955)
- -------------------------------------------------------------------------------
Total expenses 195,626,587
- -------------------------------------------------------------------------------
Expense reduction (Note 2) (3,414,117)
- -------------------------------------------------------------------------------
Net expenses 192,212,470
- -------------------------------------------------------------------------------
Net investment income 207,778,733
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,052,945,885
- -------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 1,943,360
- -------------------------------------------------------------------------------
Net realized gain on foreign currency transactions (Note 1) 483
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments, futures
contracts and written options during the year 633,890,202
- -------------------------------------------------------------------------------
Net gain on investments 1,688,779,930
- -------------------------------------------------------------------------------
Net increase in net assets resulting from operations $1,896,558,663
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Statement of changes in net assets
Year ended October 31
Increase (decrease) in net assets 2004 2003
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $207,778,733 $273,509,084
- -------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions 1,054,889,728 (680,532,989)
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 633,890,202 4,021,703,478
- -------------------------------------------------------------------------------
Net increase in net assets resulting from
operations 1,896,558,663 3,614,679,573
- -------------------------------------------------------------------------------
Distributions to shareholders: (Note 1)
- -------------------------------------------------------------------------------
From net investment income
Class A (189,764,720) (191,160,490)
- -------------------------------------------------------------------------------
Class B (25,674,863) (23,318,908)
- -------------------------------------------------------------------------------
Class C (807,679) (808,059)
- -------------------------------------------------------------------------------
Class M (1,551,145) (1,706,613)
- -------------------------------------------------------------------------------
Class R (339) (9)
- -------------------------------------------------------------------------------
Class Y (28,138,043) (22,462,126)
- -------------------------------------------------------------------------------
Redemption fees (Note 1) 40,561 --
- -------------------------------------------------------------------------------
Decrease from capital share transactions
(Note 4) (4,563,751,225) (2,746,182,781)
- -------------------------------------------------------------------------------
Total increase (decrease) in net assets (2,913,088,790) 629,040,587
Net assets
- -------------------------------------------------------------------------------
Beginning of year 20,431,705,642 19,802,665,055
- -------------------------------------------------------------------------------
End of year (including undistributed net
investment income of $4,057,838 and
$44,704,662, respectively) $17,518,616,852 $20,431,705,642
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS A
- -------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.57 $13.95 $16.86 $19.81 $21.10
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .22 (d) .23 .22 .21 .26
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.53 2.59 (2.60) (2.55) .45
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.75 2.82 (2.38) (2.34) .71
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.20) (.21) (.25) (.26)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.32) (.36) (1.74)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.20) (.53) (.61) (2.00)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.07 $16.57 $13.95 $16.86 $19.81
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.63 20.40 (14.71) (12.15) 3.92
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $12,154,652 $14,580,763 $14,095,214 $17,731,034 $20,159,272
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .92 (d) .90 .86 .82 .81
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.25 (d) 1.53 1.33 1.14 1.38
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71 29.94 36.90 52.23
- -------------------------------------------------------------------------------------------------------------------------
(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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class A shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS B
- -------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.33 $13.75 $16.62 $19.53 $20.82
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 (d) .11 .09 .07 .12
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.50 2.56 (2.56) (2.52) .44
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.59 2.67 (2.47) (2.45) .56
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.09) (.08) (.10) (.11)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.32) (.36) (1.74)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.09) (.40) (.46) (1.85)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.80 $16.33 $13.75 $16.62 $19.53
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.77 19.51 (15.37) (12.80) 3.14
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $3,364,807 $3,886,995 $4,009,396 $7,397,121 $10,163,817
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.67 (d) 1.65 1.61 1.57 1.56
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .50 (d) .78 .56 .39 .64
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71 29.94 36.90 52.23
- -------------------------------------------------------------------------------------------------------------------------
(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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class B shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS C
- -------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.50 $13.90 $16.79 $19.75 $21.08
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .09 (d) .12 .09 .07 .11
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.52 2.57 (2.58) (2.55) .46
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.61 2.69 (2.49) (2.48) .57
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.09) (.08) (.12) (.16)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.32) (.36) (1.74)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.12) (.09) (.40) (.48) (1.90)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.99 $16.50 $13.90 $16.79 $19.75
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 9.76 19.44 (15.30) (12.84) 3.16
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $109,312 $140,116 $132,854 $168,471 $117,763
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.67 (d) 1.65 1.61 1.57 1.56
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .50 (d) .78 .57 .38 .57
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71 29.94 36.90 52.23
- -------------------------------------------------------------------------------------------------------------------------
(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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class C shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS M
- -------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.46 $13.86 $16.75 $19.68 $20.97
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .13 (d) .15 .13 .12 .16
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.52 2.58 (2.58) (2.54) .45
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.65 2.73 (2.45) (2.42) .61
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.13) (.12) (.15) (.16)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.32) (.36) (1.74)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.16) (.13) (.44) (.51) (1.90)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $17.95 $16.46 $13.86 $16.75 $19.68
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.06 19.78 (15.14) (12.58) 3.41
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $145,209 $196,091 $205,097 $309,868 $387,088
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.42 (d) 1.40 1.36 1.32 1.31
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .75 (d) 1.03 .82 .64 .89
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71 29.94 36.90 52.23
- -------------------------------------------------------------------------------------------------------------------------
(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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class M shares (Note 5).
(e) Amount represents less than $0.01 per share.
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
Year January 21,
ended 2003+ to
Per-share October 31 October 31
operating performance 2004 2003
- -------------------------------------------------------------------------
Net asset value,
beginning of period $16.58 $14.58
- -------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------
Net investment income (a) .18 (d) .15
- -------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.50 1.98
- -------------------------------------------------------------------------
Total from
investment operations 1.68 2.13
- -------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------
From net
investment income (.23) (.13)
- -------------------------------------------------------------------------
Total distributions (.23) (.13)
- -------------------------------------------------------------------------
Redemption fees -- (e) --
- -------------------------------------------------------------------------
Net asset value,
end of period $18.03 $16.58
- -------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.20 14.71*
- -------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------
Net assets, end of period
(in thousands) $191 $1
- -------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) 1.17 (d) .90*
- -------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.00 (d) .99*
- -------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71
- -------------------------------------------------------------------------
+ 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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class R shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Financial highlights
(For a common share outstanding throughout the period)
CLASS Y
- -------------------------------------------------------------------------------------------------------------------------
Per-share Year ended October 31
operating performance 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
beginning of period $16.61 $13.98 $16.89 $19.85 $21.14
- -------------------------------------------------------------------------------------------------------------------------
Investment operations:
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (a) .26 (d) .26 .26 .26 .30
- -------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.53 2.61 (2.60) (2.56) .46
- -------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.79 2.87 (2.34) (2.30) .76
- -------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------
From net
investment income (.30) (.24) (.25) (.30) (.31)
- -------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments -- -- (.32) (.36) (1.74)
- -------------------------------------------------------------------------------------------------------------------------
Total distributions (.30) (.24) (.57) (.66) (2.05)
- -------------------------------------------------------------------------------------------------------------------------
Redemption fees -- (e) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.10 $16.61 $13.98 $16.89 $19.85
- -------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(b) 10.81 20.73 (14.46) (11.96) 4.18
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,744,446 $1,627,740 $1,360,104 $1,460,710 $1,530,454
- -------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(c) .67 (d) .65 .61 .57 .56
- -------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.49 (d) 1.77 1.58 1.39 1.63
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 29.44 32.71 29.94 36.90 52.23
- -------------------------------------------------------------------------------------------------------------------------
(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).
(d) Reflects waivers of certain fund expenses in connection with
investments in Putnam Prime Money Market Fund during the period. As a
result of such waivers, the expenses of the fund for the period ended
October 31, 2004 reflect a reduction of less than 0.01% of average net
assets for class Y shares (Note 5).
(e) Amount represents less than $0.01 per share.
The accompanying notes are an integral part of these financial
statements.
Notes to financial statements
October 31, 2004
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. Class A shares are sold with a maximum front-end sales charge of
5.25%. Prior to January 28, 2004, the maximum front-end sales charge for
class A shares was 5.75%. Class B shares, which convert to class A
shares after approximately eight years, do not pay a front-end sales
charge but pay a higher ongoing distribution fee than class A, class M
and class R shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class
C shares are subject to the same fees and expenses as class B shares,
except that class C shares have a one-year 1.00% contingent deferred
sales charge and do not convert to class A shares. Class M shares are
sold with a maximum front-end sales charge of 3.50% and pay an ongoing
distribution fee that is higher than class A and class R shares but
lower than class B and class C shares. Class R shares are sold without a
front-end sales charge and pay an ongoing distribution fee that is
higher than class A shares, but lower than class B, class C and class M
shares. Class R shares are offered to qualified employee-benefit plans.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C, class M and class R
shares, but do not bear a distribution fee. Class Y shares are sold to
certain eligible purchasers including certain defined contribution plans
(including corporate IRAs), bank trust departments, trust companies,
other Putnam funds and products, and certain college savings plans.
Effective April 19, 2004 (May 3, 2004 for defined contribution plans
administered by Putnam) a 2.00% redemption fee may apply to any shares
that are redeemed (either by selling or exchang ing into another fund)
within 5 days of purchase. The redemption fee is accounted for as an
addition to paid-in-capital.
Investment income, realized and unrealized gains and losses and expenses
of the fund are borne pro-rata based on the relative net assets of each
class to the total net assets of the fund, except that each class bears
expenses unique to that class (including the distribution fees
applicable to such classes). Each class votes as a class only with
respect to its own distribution plan or other matters on which a class
vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund,
if the fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies
consistently followed by the fund in the preparation of its financial
statements. The preparation of financial statements is in conformity
with accounting principles generally accepted in the United States of
America and requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities in the financial
statements and the reported amounts of increases and decreases in net
assets from operations during the reporting period. Actual results could
differ from those estimates.
A) Security valuation Investments for which market quotations are
readily available are valued at the last reported sales price on their
principal exchange, or official closing price for certain markets. If no
sales are reported -- as in the case of some securities traded
over-the-counter -- a security is valued at its last reported bid price.
Many securities markets and exchanges outside the U.S. close prior to
the close of the New York Stock Exchange and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect events that occur after such close but before the close of the
New York Stock Exchange. Accordingly, on certain days, the fund will
fair value foreign securities taking into account multiple factors,
including movements in the U.S. securities markets. The number of days
on which fair value prices will be used will depend on market activity
and it is possible that fair value prices will be used by the fund to a
significant extent. Securities quoted in foreign currencies are
translated into U.S. dollars at the current exchange rate. Short-term
investments having remaining maturities of 60 days or less are valued at
amortized cost, which approximates fair value. Other investments,
including restricted securities, are valued at fair value following
procedures approved by the Trustees. Such valuations and procedures are
reviewed periodically by the Trustees.
B) Joint trading account The fund may transfer uninvested cash balances,
including cash collateral received under security lending arrange ments,
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) Repurchase agreements The fund, or any joint trading account, through
its custodian, receives delivery of the underlying securities, the
market value of which at the time of purchase is required to be in an
amount at least equal to the resale price, including accrued interest.
Collateral for certain tri-party repurchase agreements is held at the
counterparty's custodian in a segregated account for the benefit of the
fund and the counterparty. Putnam Management is responsible for
determining that the value of these underlying securities is at all
times at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are recorded on the trade date (date the order to buy or
sell is executed). Gains or losses on securities sold are determined on
the identified cost basis.
Interest income is recorded on the accrual basis. Dividend income, net
of applicable withholding taxes, is recognized on the ex-dividend date
except that certain dividends from foreign securities are recognized as
soon as the fund is informed of the ex-dividend date. Non-cash
dividends, if any, are recorded at the fair market value of the
securities received.
All premiums/discounts are amortized/accreted on a yield-to-maturity
basis.
E) 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.
F) Futures and options contracts The fund may use futures and options
contracts to hedge against changes in the values of securities the fund
owns or expects to purchase. The fund may also write options on
securities it owns or in which it may invest to increase its current
returns.
The potential risk to the fund is that the change in value of futures
and options contracts may not correspond to the change in value of the
hedged instruments. In addition, losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparty to the contract is
unable to perform. Risks may exceed amounts recognized on the statement
of assets and liabilities. 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. If a written call
option is exercised, the premium originally received is recorded as an
addition to sales proceeds. If a written put option is exercised, the
premium originally received is recorded as an addition to the cost of
investments.
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.
Futures and written option contracts outstanding at period end, if any,
are listed after the fund's portfolio.
G) Security lending The fund may lend securities, through its agents, to
qualified borrowers in order to earn additional income. The loans are
collateralized by cash and/or securities in an amount at least equal to
the market value of the securities loaned. The market value of
securities loaned is determined daily and any additional required
collateral is allocated to the fund on the next business day. The risk
of borrower default will be borne by the fund's agents; the fund will
bear the risk of loss with respect to the investment of the cash
collateral. Income from securities lending is included in investment
income on the statement of operations. At October 31, 2004, the value of
securities loaned amounted to $227,970,673. The fund received cash
collateral of $235,780,497, which is pooled with collateral of other
Putnam funds into 23 issuers of high grade short-term investments.
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 of 1986 (the "Code") applicable
to regulated investment companies. It is also the intention of the fund
to distribute an amount sufficient to avoid imposition of any excise tax
under Section 4982 of the Code, as amended. Therefore, no provision has
been made for federal taxes on income, capital gains or unrealized
appreciation on securities held nor for excise tax on income and capital
gains.
At October 31, 2004, the fund had a capital loss carryover of
$928,398,654 available to the extent allowed by the Code to offset
future net capital gain, if any. The amount of the carryover and the
expiration dates are:
Loss Carryover Expiration
- --------------------------------
$48,534,733 October 31, 2010
879,863,921 October 31, 2011
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. These differences include temporary and permanent
differences of losses on wash sale transactions, foreign currency gains
and losses, nontaxable dividends and realized gains and losses on
certain futures contracts. Reclassifications are made to the fund's
capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations. For
the year ended October 31, 2004, the fund reclassified $2,488,768 to
decrease undistributed net investment income with a decrease to
accumulated net realized loss of $2,488,768.
The tax basis components of distributable earnings and the federal tax
cost as of period end were as follows:
Unrealized appreciation $3,326,418,018
Unrealized depreciation (764,638,207)
------------
Net unrealized appreciation 2,561,779,811
Undistributed ordinary
income 3,847,996
Capital loss carryforward (928,398,654)
Cost for federal income
tax purposes $15,233,017,346
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.
Effective January 28, 2004, Putnam Management has agreed to waive fees
and reimburse expenses of the fund through October 31, 2005 to the
extent necessary to ensure that the fund's expenses do not exceed the
average expenses of the front-end load funds viewed by Lipper Inc. as
having the same investment classification or objective as the fund.
The expense reimbursement is based on a comparison of the fund's
expenses with the average annualized operating expenses of the funds in
its Lipper peer group for each calendar quarter during the fund's last
fiscal year, excluding 12b-1 fees and without giving effect to any
expense offset and brokerage service arrangements that may reduce fund
expenses. For the year ended October 31, 2004, Putnam Management did not
waive any of its management fee to the fund.
For the period ended October 31, 2004, Putnam Management has assumed
$826,556 of legal, shareholder servicing and communication, audit and
Trustee fees incurred by the fund in connection with certain legal and
regulatory matters. (including those described in Note 6).
The fund reimburses Putnam Management an allocated amount for the
compensation and related expenses of certain officers of the fund and
their staff who provide administrative services to the fund. The
aggregate amount of all such reimbursements is determined annually by
the Trustees.
Custodial functions for the fund's assets are provided by Putnam
Fiduciary Trust Company ("PFTC"), a subsidiary of Putnam, LLC. Putnam
Investor Services, a division of PFTC, provides investor servicing agent
functions to the fund. During the year ended October 31, 2004, the fund
paid PFTC $31,971,303 for these services.
The fund has entered into an arrangement with PFTC whereby credits
realized as a result of uninvested cash balances are used to reduce a
portion of the fund's expenses. The fund also reduced expenses through
brokerage service arrangements. For the year ended, October 31, 2004,
the fund's expenses were reduced by $3,414,117 under these arrangements.
Each independent Trustee of the fund receives an annual Trustee fee, of
which $9,398, as a quarterly retainer, has been allocated to the fund,
and an additional fee for each Trustees meeting attended. Trustees
receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan")
which allows the Trustees to defer the receipt of all or a portion of
Trustees fees payable on or after July 1, 1995. The deferred fees remain
invested in certain Putnam funds until distribution in accordance with
the Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension
plan (the "Pension Plan") covering all Trustees of the fund who have
served as a Trustee for at least five years. Benefits under the Pension
Plan are equal to 50% of the Trustee's average total retainer and
meeting fees for the three years preceding retirement. Pension expense
for the fund is included in Trustee compensation and expenses in the
statement of operations. Accrued pension liability is included in
Payable for Trustee compensation and expenses in the statement of assets
and liabilities. The Trustees have terminated the Pension Plan with
respect to any Trustee first elected after 2003.
The fund has adopted distribution plans (the "Plans") with respect to
its class A, class B, class C, class M and class R shares pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The purpose of the
Plans is to compensate Putnam Retail Management, a wholly-owned
subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for
services provided and expenses incurred in distributing shares of the
fund. The Plans provide for payments by the fund to Putnam Retail
Management at an annual rate of up to 0.35%, 1.00%, 1.00%, 1.00% and
1.00% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00%, 0.75% and
0.50% of the average net assets attributable to class A, class B, class
C, class M and class R shares, respectively.
For the year ended October 31, 2004, Putnam Retail Management, acting as
underwriter, received net commissions of $667,835 and $14,286 from the
sale of class A and class M shares, respectively, and received
$7,597,848 and $19,720 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1.00% and 0.65% is assessed on certain redemptions
of class A and class M shares, respectively. For the year ended October
31, 2004, Putnam Retail Manage ment, acting as underwriter, received
$29,918 and no monies on class A and class M redemptions, respectively.
Note 3
Purchases and sales of securities
During the year ended October 31, 2004, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $5,475,589,814 and $9,827,132,991, respectively. There were
no purchases or sales of U.S. government securities.
Written option transactions during the year are summarized as follows:
Contract Premiums
Amounts Received
- ----------------------------------------------------------------
Written options
outstanding at
beginning of year -- $--
- ----------------------------------------------------------------
Options opened 730,572 399,322
Options exercised (614,761) (161,805)
Options expired -- --
Options closed -- --
- ----------------------------------------------------------------
Written options
outstanding at
end of year 115,811 $237,517
- ----------------------------------------------------------------
Note 4
Capital shares
At October 31, 2004, there was an unlimited number of shares of
beneficial interest authorized. Transactions in capital shares were as
follows:
Year ended October 31, 2004
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 46,845,463 $829,959,093
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 9,935,249 174,971,459
- ----------------------------------------------------------------
56,780,712 1,004,930,552
Shares repurchased (263,743,238) (4,595,324,686)
- ----------------------------------------------------------------
Net decrease (206,962,526) $(3,590,394,134)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class A Shares Amount
- ----------------------------------------------------------------
Shares sold 99,833,873 $1,462,775,910
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 11,964,902 175,951,305
- ----------------------------------------------------------------
111,798,775 1,638,727,215
Shares repurchased (242,262,167) (3,579,085,331)
- ----------------------------------------------------------------
Net decrease (130,463,392) $(1,940,358,116)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 13,306,158 $231,906,748
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,401,696 23,984,808
- ----------------------------------------------------------------
14,707,854 255,891,556
Shares repurchased (63,646,331) (1,094,161,154)
- ----------------------------------------------------------------
Net decrease (48,938,477) $(838,269,598)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class B Shares Amount
- ----------------------------------------------------------------
Shares sold 23,818,472 $346,814,824
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,494,791 21,680,974
- ----------------------------------------------------------------
25,313,263 368,495,798
Shares repurchased (78,844,929) (1,130,637,069)
- ----------------------------------------------------------------
Net decrease (53,531,666) $(762,141,271)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 980,495 $17,366,483
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 42,398 732,592
- ----------------------------------------------------------------
1,022,893 18,099,075
Shares repurchased (3,437,566) (59,531,393)
- ----------------------------------------------------------------
Net decrease (2,414,673) $(41,432,318)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class C Shares Amount
- ----------------------------------------------------------------
Shares sold 2,306,602 $34,083,222
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 50,168 735,065
- ----------------------------------------------------------------
2,356,770 34,818,287
Shares repurchased (3,427,752) (50,325,373)
- ----------------------------------------------------------------
Net decrease (1,070,982) $(15,507,086)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 889,399 $15,627,876
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 85,513 1,482,523
- ----------------------------------------------------------------
974,912 17,110,399
Shares repurchased (4,795,920) (83,269,898)
- ----------------------------------------------------------------
Net decrease (3,821,008) $(66,159,499)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class M Shares Amount
- ----------------------------------------------------------------
Shares sold 1,755,082 $25,704,440
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 111,890 1,633,086
- ----------------------------------------------------------------
1,866,972 27,337,526
Shares repurchased (4,753,881) (69,871,381)
- ----------------------------------------------------------------
Net decrease (2,886,909) $(42,533,855)
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 10,660 $190,786
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 19 339
- ----------------------------------------------------------------
10,679 191,125
Shares repurchased (129) (2,295)
- ----------------------------------------------------------------
Net increase 10,550 $188,830
- ----------------------------------------------------------------
Period from January 21, 2003
(commencement of operations)
to October 31, 2003
- ----------------------------------------------------------------
Class R Shares Amount
- ----------------------------------------------------------------
Shares sold 69 $1,000
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions -- 9
- ----------------------------------------------------------------
69 1,009
Shares repurchased -- --
- ----------------------------------------------------------------
Net increase 69 $1,009
- ----------------------------------------------------------------
Year ended October 31, 2004
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 25,697,636 $457,615,976
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,589,397 28,138,043
- ----------------------------------------------------------------
27,287,033 485,754,019
Shares repurchased (28,951,932) (513,438,525)
- ----------------------------------------------------------------
Net decrease (1,664,899) $(27,684,506)
- ----------------------------------------------------------------
Year ended October 31, 2003
- ----------------------------------------------------------------
Class Y Shares Amount
- ----------------------------------------------------------------
Shares sold 28,040,466 $418,734,714
- ----------------------------------------------------------------
Shares issued in
connection with
reinvestment
of distributions 1,517,568 22,462,126
- ----------------------------------------------------------------
29,558,034 441,196,840
Shares repurchased (28,830,451) (426,840,302)
- ----------------------------------------------------------------
Net increase 727,583 $14,356,538
- ----------------------------------------------------------------
Note 5
Investment in Putnam Prime Money Market Fund
The fund invests in Putnam Prime Money Market Fund, an open-end
management investment company managed by Putnam Manage ment. Management
fees paid by the fund are reduced by an amount equal to the management
fees paid by Putnam Prime Money Market Fund with respect to assets
invested by the fund in Putnam Prime Money Market Fund. For the year
ended October 31, 2004, management fees paid were reduced by $75,955
relating to the fund's investment in Putnam Prime Money Market Fund.
Income distributions earned by the fund are recorded as income in the
statement of operations and totaled $391,280 for the period ended
October 31, 2004.
Note 6
Regulatory matters and litigation
On April 8, 2004, Putnam Management entered into agreements with the
Securities and Exchange Commission ("SEC") and the Massachusetts
Securities Division representing a final settlement of all charges
brought against Putnam Management by those agencies on October 28, 2003
in connection with excessive short-term trading by Putnam employees and,
in the case of the charges brought by the Massachusetts Securities
Division, by participants in some Putnam-administered 401(k) plans. The
settlement with the SEC requires Putnam Management to pay $5 million in
disgorgement plus a civil monetary penalty of $50 million, and the
settlement with the Massachusetts Securities Division requires Putnam
Management to pay $5 million in restitution and an administrative fine
of $50 million. The settlements also leave intact the process
established under an earlier partial settlement with the SEC under which
Putnam Management agreed to pay the amount of restitution determined by
an independent consultant, which may exceed the disgorgement and
restitution amounts specified above, pursuant to a plan to be developed
by the independent consultant.
Putnam Management, and not the investors in any Putnam fund, will bear
all costs, including restitution, civil penalties and associated legal
fees stemming from both of these proceedings. The SEC's and
Massachusetts Securities Division's allegations and related matters also
serve as the general basis for numerous lawsuits, including purported
class action lawsuits filed against Putnam Management and certain
related parties, including certain Putnam funds. Putnam Management has
agreed to bear any costs incurred by Putnam funds in connection with
these lawsuits. Based on currently available information, Putnam
Management believes that the likelihood that the pending private
lawsuits and purported class action lawsuits will have a material
adverse financial impact on the fund is remote, and the pending actions
are not likely to materially affect its ability to provide investment
management services to its clients, including the Putnam funds.
The fund may experience increased redemptions as a result of these
matters, which could result in increased transaction costs and operating
expenses.
Putnam Management has negotiated an offer of settlement with the staff
of the SEC, which the staff has agreed to recommend to the Commissioners
of the SEC. The offer of settlement would resolve matters arising out of
the SEC's investigation of Putnam Management's brokerage practices. The
settlement would involve the alleged failure by Putnam Management to
adequately disclose its practices relating to the allocation of
brokerage on portfolio transactions to broker-dealers who sold shares of
Putnam mutual funds. Putnam Management ceased directing brokerage to
broker-dealers in connection with the sale of fund shares as of January
1, 2004. Under the offer of settlement, Putnam Management would pay a
civil penalty in the amount of $40 million and disgorgement in the
amount of one dollar ($1). The total amount of the payment would be paid
to certain Putnam funds, pursuant to a distribution plan to be submitted
to the SEC. The settlement remains subject to final documentation and
approval by the Commissioners of the SEC.
Federal tax information
(Unaudited)
The fund has designated 100% of the distributions from net investment
income as qualifying for the dividends received deduction for
corporations.
For its tax year ended October 31, 2004, the fund hereby designates
100%, or the maximum amount allowable, of its net taxable income as
dividends taxed at individual net capital gain rates.
The Form 1099 you receive in January 2005 will show the tax status of
all distributions paid to your account in calendar 2004.
Brokerage commissions
(Unaudited)
Brokerage commissions are paid to firms that execute trades on behalf of
your fund. When choosing these firms, Putnam is required by law to seek
the best execution of the trades, taking all relevant factors into
consideration, including expected quality of execution and commission
rate. Listed below are the largest relationships based upon brokerage
commissions for your fund and the other funds in Putnam's Large-Cap
Value group for the year ended October 31, 2004. The other Putnam mutual
funds in this group are The George Putnam Fund of Boston, Putnam Classic
Equity Fund, Putnam Convertible Income-Growth Trust, Putnam Equity
Income Fund, Putnam New Value Fund, Putnam VT Equity Income Fund, Putnam
VT The George Putnam Fund of Boston, Putnam VT Growth and Income Fund,
and Putnam VT New Value Fund.
The top five firms that received brokerage commissions for trades
executed for the Large Cap Value group are (in descending order)
Citigroup, Deutsche Bank, Merrill Lynch, Goldman Sachs, and CSFB.
Commissions paid to these firms together represented approximately 45%
of the total brokerage commissions paid for the year ended October 31,
2004.
Commissions paid to the next 10 firms together represented approximately
37% of the total brokerage commissions paid during the period. These
firms are (in alphabetical order) Bank of America, Bear Stearns,
Factset, ITG, JP Morgan, Lehman, Morgan Stanley, Sanford Bernstein,
Standard & Poor's, and UBS.
Commission amounts do not include "mark-ups" paid on bond or derivative
trades made directly with a dealer. Additional information about
brokerage commissions is available on the Securities and Exchange
Commission (SEC) Web site at www.sec.gov. Putnam funds disclose
commissions by firm to the SEC in semiannual filings on form N-SAR.
About the Trustees
Jameson A. Baxter (9/6/43), Trustee since 1994
Ms. Baxter is the President of Baxter Associates, Inc., a private
investment firm that she founded in 1986.
Ms. Baxter serves as a Director of ASHTA Chemicals, Inc., Banta
Corporation (a printing and digital imaging firm), Ryerson Tull, Inc. (a
steel service corporation), Advocate Health Care and BoardSource,
formerly the National Center for Nonprofit Boards. She is Chairman
Emeritus of the Board of Trustees, Mount Holyoke College, having served
as Chairman for five years and as a board member for thirteen years.
Until 2002, Ms. Baxter was a Director of Intermatic Corporation (a
manufacturer of energy control products).
Ms. Baxter has held various positions in investment banking and
corporate finance, including Vice President and Principal of the Regency
Group, and Vice President of and Consultant to First Boston Corporation.
She is a graduate of Mount Holyoke College.
Charles B. Curtis (4/27/40), Trustee since 2001
Mr. Curtis is President and Chief Operating Officer of the Nuclear
Threat Initiative (a private foundation dealing with national security
issues) and serves as Senior Advisor to the United Nations Foundation.
Mr. Curtis is a member of the Council on Foreign Relations and the
Trustee Advisory Council of the Applied Physics Laboratory, Johns
Hopkins University. Until 2003, Mr. Curtis was a member of the Electric
Power Research Institute Advisory Council and the University of Chicago
Board of Governors for Argonne National Laboratory. Prior to 2002, Mr.
Curtis was a Member of the Board of Directors of the Gas Technology
Institute and the Board of Directors of the Environment and Natural
Resources Program Steering Committee, John F. Kennedy School of
Government, Harvard University. Until 2001, Mr. Curtis was a member of
the Department of Defense Policy Board and Director of EG&G Technical
Services, Inc. (a fossil energy research and development support
company).
From August 1997 to December 1999, Mr. Curtis was a Partner at Hogan &
Hartson L.L.P., a Washington, D.C. law firm. Prior to May 1997, Mr.
Curtis was Deputy Secretary of Energy. He served as Chairman of the
Federal Energy Regulatory Commission from 1977 to 1981 and has held
positions on the staff of the U.S. House of Representatives, the U.S.
Treasury Department, and the SEC.
Myra R. Drucker (1/16/48)
Ms. Drucker is a Vice Chair of the Board of Trustees of Sarah Lawrence
College, a Trustee of Commonfund (a not-for-profit firm specializing in
asset management for educational endowments and foundations) and a
member of the Investment Committee of the Kresge Foundation (a
charitable trust). She is also Chair of the New York Stock Exchange
(NYSE) Pension Managers Advisory Committee and a member of the Executive
Committee of the Committee on Investment of Employee Benefit Assets.
Until August 31, 2004, Ms. Drucker was Managing Director and a member of
the Board of Directors of General Motors Asset Management and Chief
Investment Officer of General Motors Trust Bank. Ms. Drucker also served
as a member of the NYSE Corporate Accountability and Listing Standards
Committee and the NYSE/NASD IPO Advisory Committee.
Prior to joining General Motors Asset Management in 2001, Ms. Drucker
held various executive positions in the investment management industry.
Ms. Drucker served as Chief Investment Officer of Xerox Corporation (a
technology and service company in the document industry), where she was
responsible for the investment of the company 's pension assets. Ms.
Drucker was also Staff Vice President and Director of Trust Investments
for International Paper (a paper, paper distribution, packaging and
forest products company) and previously served as Manager of Trust
Investments for Xerox Corporation. Ms. Drucker received a B.A. degree in
Literature and Psychology from Sarah Lawrence College and pursued
graduate studies in economics, statistics and portfolio theory at Temple
University.
John A. Hill (1/31/42), Trustee since 1985 and Chairman since 2000
Mr. Hill is Vice Chairman of First Reserve Corporation, a private equity
buyout firm that specializes in energy investments in the diversified
worldwide energy industry.
Mr. Hill is a Director of Devon Energy Corporation, TransMontaigne Oil
Company, Continuum Health Partners of New York and various private
companies controlled by First Reserve Corporation, as well as a Trustee
of TH Lee, Putnam Investment Trust (a closed-end investment company
advised by an affiliate of Putnam Management). He is also a Trustee of
Sarah Lawrence College.
Prior to acquiring First Reserve Corporation in 1983, Mr. Hill held
executive positions in investment banking and investment management with
several firms and with the federal government, including Deputy
Associate Director of the Office of Management and Budget and Deputy
Director of the Federal Energy Administration. He is active in various
business associations, including the Economic Club of New York, and
lectures on energy issues in the United States and Europe. Mr. Hill
holds a B.A. degree in Economics from Southern Methodist University and
pursued graduate studies there as a Woodrow Wilson Fellow.
Ronald J. Jackson (12/17/43), Trustee since 1996
Mr. Jackson is a private investor.
Mr. Jackson is President of the Kathleen and Ronald J. Jackson
Foundation (a charitable trust). He is also a member of the Board of
Overseers of WGBH (a public television and radio station) as well as a
member of the Board of Overseers of the Peabody Essex Museum.
Mr. Jackson is the former Chairman, President and Chief Executive
Officer of Fisher-Price, Inc. (a major toy manufacturer), from which he
retired in 1993. He previously served as President and Chief Executive
Officer of Stride-Rite, Inc. (a manufacturer and distributor of
footwear) and of Kenner Parker Toys, Inc. (a major toy and game
manufacturer). Mr. Jackson was President of Talbots, Inc. (a distributor
of women's apparel) and has held financial and marketing positions with
General Mills, Inc. and Parker Brothers (a toy and game company). Mr.
Jackson is a graduate of Michigan State University Business School.
Paul L. Joskow (6/30/47), Trustee since 1997
Dr. Joskow is the Elizabeth and James Killian Professor of Economics and
Management, and Director of the Center for Energy and Environmental
Policy Research at the Massachusetts Institute of Technology.
Dr. Joskow serves as a Director of National Grid Transco (a UK-based
holding company with interests in electric and gas transmission and
distribution and telecommunications infrastructure) and TransCanada
Corporation (an energy company focused on natural gas transmission and
power services). He also serves on the board of the Whitehead Institute
for Biomedical Research (a non-profit research institution) and has been
President of the Yale University Council since 1993. Prior to February
2002, he was a Director of State Farm Indemnity Company (an automobile
insurance company), and, prior to March 2000, he was a Director of New
England Electric System (a public utility holding company).
Dr. Joskow has published five books and numerous articles on topics in
industrial organization, government regulation of industry, and
competition policy. He is active in industry restructuring,
environmental, energy, competition and privatization policies -- serving
as an advisor to governments and corporations worldwide. Dr. Joskow
holds a Ph.D. and M. Phil from Yale University and B.A. from Cornell
University.
Elizabeth T. Kennan (2/25/38), Trustee since 1992
Dr. Kennan is a Partner of Cambus-Kenneth Farm (thoroughbred horse and
cattle breeding). She is President Emeritus of Mount Holyoke College.
Dr. Kennan served as Chairman and is now Lead Director of Northeast
Utilities and is a Director of Talbots, Inc. She has served as Director
on a number of other boards, including Bell Atlantic, Chastain Real
Estate, Shawmut Bank, Berkshire Life Insurance and Kentucky Home Life
Insurance. She is a Trustee of the National Trust for Historic
Preservation, of Centre College and of Midway College in Midway,
Kentucky. She is also a member of The Trustees of Reservations. Dr.
Kennan has served on the oversight committee of the Folger Shakespeare
Library, as President of Five Colleges Incorporated, as a Trustee of
Notre Dame University and is active in various educational and civic
associations.
As a member of the faculty of Catholic University for twelve years,
until 1978, Dr. Kennan directed the post-doctoral program in Patristic
and Medieval Studies, taught history and published numerous articles.
Dr. Kennan holds a Ph.D. from the University of Washington in Seattle,
an M.S. from St. Hilda's College at Oxford University and an A.B. from
Mount Holyoke College. She holds several honorary doctorates.
John H. Mullin, III (6/15/41), Trustee since 1997
Mr. Mullin is the Chairman and CEO of Ridgeway Farm (a limited liability
company engaged in timber and farming).
Mr. Mullin serves as a Director of The Liberty Corporation (a
broadcasting company), Progress Energy, Inc. (a utility company,
formerly known as Carolina Power & Light) and Sonoco Products, Inc. (a
packaging company). Mr. Mullin is Trustee Emeritus of The National
Humanities Center and Washington & Lee University, where he served as
Chairman of the Investment Committee. Prior to May 2001, he was a
Director of Graphic Packaging International Corp. Prior to February
2004, he was a Director of Alex Brown Realty, Inc.
Mr. Mullin is also a past Director of Adolph Coors Company; ACX
Technologies, Inc.; Crystal Brands, Inc.; Dillon, Read & Co., Inc.;
Fisher-Price, Inc.; and The Ryland Group, Inc. Mr. Mullin is a graduate
of Washington & Lee University and The Wharton Graduate School,
University of Pennsylvania.
Robert E. Patterson (3/15/45), Trustee since 1984
Mr. Patterson is Senior Partner of Cabot Properties, L.P. and Chairman
of Cabot Properties, Inc. (a private equity firm investing in commercial
real estate).
Mr. Patterson serves as Chairman of the Joslin Diabetes Center and as a
Director of Brandywine Trust Company. Prior to June 2003, he was a
Trustee of Sea Education Association. Prior to December 2001, he was
President and Trustee of Cabot Industrial Trust (a publicly traded real
estate investment trust). Prior to February 1998, he was Executive Vice
President and Director of Acquisitions of Cabot Partners Limited
Partnership (a registered investment adviser involved in institutional
real estate investments). Prior to 1990, he served as Executive Vice
President of Cabot, Cabot & Forbes Realty Advisors, Inc. (the
predecessor company of Cabot Partners) and as a Senior Vice President of
the Beal Companies (a real estate management, investment and development
firm).
Mr. Patterson practiced law and held various positions in state
government and was the founding Executive Director of the Massachusetts
Industrial Finance Agency. Mr. Patterson is a graduate of Harvard
College and Harvard Law School.
W. Thomas Stephens (9/2/42), Trustee since 1997
Mr. Stephens serves on a number of corporate boards.
Mr. Stephens is Chairman and Chief Executive Officer of Boise Cascade,
L.L.C. (a paper, forest products and timberland assets company). Mr.
Stephens serves as a Director of TransCanada Pipelines Limited. Until
2004, Mr. Stephens was a Director of Xcel Energy Incorporated (a public
utility company), Qwest Communications, and Norske Canada, Inc. (a paper
manufacturer). Until 2003, Mr. Stephens was a Director of Mail-Well,
Inc. (a diversified printing company). He served as Chairman of
Mail-Well until 2001 and as CEO of MacMillan-Bloedel, Ltd. (a forest
products company) until 1999.
Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of
Johns Manville Corporation. He holds B.S. and M.S. degrees from the
University of Arkansas.
Richard B. Worley (11/15/45)
Mr. Worley is Managing Partner of Permit Capital, LLC, an investment
management firm.
Mr. Worley serves on the Executive Committee of the University of
Pennsylvania Medical Center, is a Trustee of The Robert Wood Johnson
Foundation (a philanthropic organization devoted to health care issues)
and is a Director of The Colonial Williamsburg Foundation (a historical
preservation organization). Mr. Worley also serves on the investment
committees of Mount Holyoke College and World Wildlife Fund (a wildlife
conservation organization).
Prior to joining Permit Capital LLC in 2002, Mr. Worley served as Chief
Strategic Officer of Morgan Stanley Investment Management. He previously
served as President, Chief Executive Officer and Chief Investment
Officer of Morgan Stanley Dean Witter Investment Management and as a
Managing Director of Morgan Stanley, a financial services firm. Mr.
Worley also was the Chairman of Miller Anderson & Sherrerd, an
investment management firm.
Mr. Worley holds a B.S. degree from University of Tennessee and pursued
graduate studies in economics at the University of Texas.
Charles E. Haldeman, Jr.* (10/29/48)
Mr. Haldeman is President and Chief Executive Officer of Putnam, LLC
("Putnam Investments"). He is a member of Putnam Investments' Executive
Board of Directors and Advisory Council. Prior to November 2003, Mr.
Haldeman served as Co-Head of Putnam Investments' Investment Division.
Prior to joining Putnam Investments in 2002, Mr. Haldeman held executive
positions in the investment management industry. He previously served as
Chief Executive Officer of Delaware Investments and President & Chief
Operating Officer of United Asset Management. Mr. Haldeman was also a
partner and director of Cooke & Bieler, Inc. (an investment management
firm).
Mr. Haldeman currently serves as a Trustee of Dartmouth College and as
Emeritus Trustee of Abington Memorial Hospital. He is a graduate of
Dartmouth College, Harvard Law School and Harvard Business School. Mr.
Haldeman is also a Chartered Financial Analyst (CFA) charterholder.
George Putnam, III* (8/10/51), Trustee since 1984 and President
since 2000
Mr. Putnam is President of New Generation Research, Inc. (a publisher of
financial advisory and other research services), and of New Generation
Advisers, Inc. (a registered investment advisor to private funds). Mr.
Putnam founded the New Generation companies in 1986.
Mr. Putnam is a Director of The Boston Family Office, LLC (a registered
investment adviser). He is a Trustee of St. Mark's School, Shore Country
Day School, and until 2002 was a Trustee of the Sea Education
Association.
Mr. Putnam previously worked as an attorney with the law firm of Dechert
LLP (formerly known as Dechert Price & Rhoads) in Philadelphia. He is a
graduate of Harvard College, Harvard Business School and Harvard Law
School.
A.J.C. Smith* (4/13/34), Trustee since 1986
Mr. Smith is the Chairman of Putnam Investments and Consultant to Marsh
& McLennan Companies, Inc.
Mr. Smith is also a Director of Trident Corp. (a limited partnership
with over thirty institutional investors). He is also a Trustee of the
Carnegie Hall Society, the Educational Broadcasting Corporation, and the
National Museums of Scotland. He is Chairman of the Central Park
Conservancy and a Member of the Board of Overseers of the Joan and
Sanford I. Weill Graduate School of Medical Sciences of Cornell
University. Prior to November 2004, Mr. Smith was a Director of Marsh &
McLennan Companies, Inc. Prior to May 2000 and November 1999, Mr. Smith
was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc.
The address of each Trustee is One Post Office Square, Boston, MA 02109.
As of October 31, 2004, there were 110 Putnam Funds. All Trustees other
than Ms. Drucker and Messrs. Worley and Haldeman serve as Trustees of
all Putnam funds. Ms. Drucker and Messrs. Worley and Haldeman currently
serve as Trustees of 82 Putnam funds.
Each Trustee serves for an indefinite term, until his or her
resignation, retirement at age 72, death, or removal.
* Trustees who are or may be deemed to be "interested persons" (as
defined in the Investment Company Act of 1940) of the fund, Putnam
Management, Putnam Retail Management, or Marsh & McLennan Companies,
Inc., the parent company of Putnam, LLC and its affiliated companies.
Messrs. Haldeman, Putnam, III, and Smith are deemed "interested persons"
by virtue of their positions as officers of the fund, Putnam Management,
Putnam Retail Management or Marsh & McLennan Companies, Inc. and as
shareholders of Marsh & McLennan Companies, Inc. Mr. Putnam, III is the
President of your fund and each of the other Putnam funds. Mr. Haldeman
is President and Chief Executive Officer of Putnam Investments. Mr.
Smith serves as a Consultant to Marsh & McLennan Companies, Inc. and as
Chairman of Putnam Investments.
Officers
In addition to George Putnam, III, the other officers of the
fund are shown below:
Charles E. Porter (7/26/38)
Executive Vice President, Associate Treasurer and Principal
Executive Officer
Since 1989
Managing Director, Putnam Investments
and Putnam Management
Jonathan S. Horwitz (6/4/55)
Senior Vice President and Treasurer
Since 2004
Managing Director, Putnam Investments
Steven D. Krichmar (6/27/58)
Vice President and Principal Financial Officer
Since 2002
Senior Managing Director, Putnam Investments. Prior to July
2001, Partner, PricewaterhouseCoopers LLP
Michael T. Healy (1/24/58)
Assistant Treasurer and Principal
Accounting Officer
Since 2000
Managing Director, Putnam Investments
Beth S. Mazor (4/6/58)
Vice President
Since 2002
Senior Vice President, Putnam Investments
Daniel T. Gallagher (2/27/62)
Vice President and Legal and Compliance Liaison Officer
Since 2004
Vice President, Putnam Investments. Prior to 2004,
Associate, Ropes & Gray LLP; prior to 2000, Law Clerk,
Massachusetts Supreme Judicial Court
Francis J. McNamara, III (8/19/55)
Vice President and Chief Legal Officer
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2004, General Counsel,
State Street Research & Management Company
James P. Pappas (2/24/53)
Vice President
Since 2004
Managing Director, Putnam Investments and Putnam Management.
During 2002, Chief Operating Officer, Atalanta/Sosnoff
Management Corporation; prior to 2001, President and Chief
Executive Officer, UAM Investment Services, Inc.
Richard S. Robie, III (3/30/60)
Vice President
Since 2004
Senior Managing Director, Putnam
Investments, Putnam Management and
Putnam Retail Management. Prior to 2003, Senior Vice
President, United Asset Management Corporation
Charles A. Ruys de Perez (10/17/57)
Vice President and Chief Compliance Officer
Since 2004
Managing Director, Putnam Investments
Mark C. Trenchard (6/5/62)
Vice President and BSA Compliance Officer
Since 2002
Senior Vice President, Putnam Investments
Judith Cohen (6/7/45)
Clerk and Assistant Treasurer
Since 1993
Clerk and Assistant Treasurer, The Putnam Funds
The address of each Officer is One Post Office Square,
Boston, MA 02109.
Fund information
One of the largest mutual fund families in the United States, Putnam
Investments has a heritage of investment leadership dating back to Judge
Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition
and practice since 1830. Founded over 65 years ago, Putnam Investments
was built around the concept that a balance between risk and reward is
the hallmark of a well-rounded financial program. We presently manage
over 100 mutual funds in growth, value, blend, fixed income, and
international.
Investment Manager
Putnam Investment
Management, LLC
One Post Office Square
Boston, MA 02109
Marketing Services
Putnam Retail Management
One Post Office Square
Boston, MA 02109
Custodian
Putnam Fiduciary Trust Company
Legal Counsel
Ropes & Gray LLP
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
Trustees
John A. Hill, Chairman
Jameson Adkins Baxter
Charles B. Curtis
Myra R. Drucker
Charles E. Haldeman, Jr.
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
John H. Mullin, III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
Richard B. Worley
Officers
George Putnam, III
President
Charles E. Porter
Executive Vice President,
Associate Treasurer and Principal Executive
Officer
Jonathan S. Horwitz
Senior Vice President and Treasurer
Steven D. Krichmar
Vice President and Principal
Financial Officer
Michael T. Healy
Assistant Treasurer and Principal
Accounting Officer
Beth S. Mazor
Vice President
Daniel T. Gallagher
Vice President and Legal and
Compliance Liaison Officer
James P. Pappas
Vice President
Richard S. Robie, III
Vice President
Mark C. Trenchard
Vice President and BSA Compliance Officer
Francis J. McNamara, III
Vice President and Chief Legal Officer
Charles A. Ruys de Perez
Vice President and Chief Compliance Officer
Judith Cohen
Clerk and Assistant Treasurer
This report is for the information of shareholders of The Putnam Fund
for Growth and Income. It may also be used as sales literature when
preceded or accompanied by the current prospectus, the most recent copy
of Putnam's Quarterly Performance Summary, and Putnam's Quarterly
Ranking Summary. For more recent performance, please visit
www.putnaminvestments.com. Investors should carefully consider the
investment objective, risks, charges, and expenses of a fund, which are
described in its prospectus. For this and other information or to
request a prospectus, call 1-800-225-1581 toll free. Please read the
prospectus carefully before investing. The fund's Statement of
Additional Information contains additional information about the fund's
Trustees and is available without charge upon request by calling
1-800-225-1581.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
PRSRT STD
U.S. POSTAGE PAID
PUTNAM
INVESTMENTS
Call 1-800-225-1581 or visit our Web site www.putnaminvestments.com.
AN022-216532 12/04
Not FDIC Insured May Lose Value No Bank Guarantee
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
The Putnam Fund for Growth and Income
Supplement to Annual Report dated 10/31/04
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to clients that meet the
eligibility requirements specified in the fund's prospectus for such
shares. Performance of class Y shares, which do not incur a
front-end load, a distribution fee, or a contingent deferred sales
charge, will differ from the performance of class A, B, C, M, and R
shares, which are discussed more extensively in the annual report.
RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 10/31/04
NAV
1 year 10.81%
5 years 4.96
Annual average 0.97
10 years 156.77
Annual average 9.89
Life of fund (since class A inception, 11/6/57)
Annual average 12.36
Share value: NAV
10/31/03 $16.61
10/31/04 $18.10
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
4 $0.297 -- $0.297
- ----------------------------------------------------------------------------
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 (6/15/94) are derived from the historical performance of
class A shares, and are not adjusted to reflect the initial sales
charge currently applicable to class A shares. These returns have
not been adjusted to reflect differences in operating expenses
which, for class Y shares, typically are lower than the operating
expenses applicable to class A shares. All returns assume
reinvestment of distributions at net asset value. Investment return
and principal value will fluctuate so your shares, when redeemed,
may be worth more or less than their original cost. See full report
for information on comparative benchmarks. If you have questions,
please consult your fund prospectus or call Putnam toll free at
1-800-752-9894.
Please see pages 11 and 12 of the accompanying shareholder report
for a discussion of the information appearing in the tables below:
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming actual returns for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $3.46
Ending value (after expenses) $1,025.40
- ----------------------------------------------------------------------------
EXPENSES AND VALUE OF A $1,000 INVESTMENT
assuming a hypothetical 5% annualized return for the 6 months ended 10/31/04
Class Y
Expenses paid per $1,000* $3.46
Ending value (after expenses) $1,021.72
- ----------------------------------------------------------------------------
EXPENSE RATIO COMPARISON USING ANNUALIZED DATA
Your fund's annualized expense ratio+ 0.68%
Average annualized expense ratio for Lipper peer group++ 1.03%
++ For class Y shares, Putnam has adjusted the Lipper total expense average
to reflect that class Y shares do not incur 12b-1 fees.
- ----------------------------------------------------------------------------
Item 2. Code of Ethics:
- -----------------------
All officers of the Fund, including its principal executive, financial and
accounting officers, are employees of Putnam Investment Management, LLC,
the Fund's investment manager. As such they are subject to a comprehensive
Code of Ethics adopted and administered by Putnam Investments which is
designed to protect the interests of the firm and its clients. The Fund
has adopted a Code of Ethics which incorporates the Code of Ethics of
Putnam Investments with respect to all of its officers and Trustees who are
employees of Putnam Investment Management, LLC. For this reason, the Fund
has not adopted a separate code of ethics governing its principal
executive, financial and accounting officers.
Item 3. Audit Committee Financial Expert:
- -----------------------------------------
The Funds' Audit and Pricing Committee is comprised solely of Trustees
who are "independent" (as such term has been defined by the Securities
and Exchange Commission ("SEC") in regulations implementing Section 407
of the Sarbanes-Oxley Act (the "Regulations")). The Trustees believe
that each of the members of the Audit and Pricing Committee also possess
a combination of knowledge and experience with respect to financial
accounting matters, as well as other attributes, that qualify them for
service on the Committee. In addition, the Trustees have determined
that all members of the Funds' Audit and Pricing Committee meet the
financial literacy requirements of the New York Stock Exchange's rules
and that Mr. Patterson, Mr. Stephens and Mr. Worley qualify as "audit
committee financial experts" (as such term has been defined by the
Regulations) based on their review of their pertinent experience and
education. Certain other Trustees, although not on the Audit and Pricing
Committee, would also qualify as "audit committee financial experts."
The SEC has stated that the designation or identification of a person as
an audit committee financial expert pursuant to this Item 3 of Form N-CSR
does not impose on such person any duties, obligations or liability that
are greater than the duties, obligations and liability imposed on such
person as a member of the Audit and Pricing Committee and the Board of
Trustees in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services:
- -----------------------------------------------
The following table presents fees billed in each of the last two
fiscal years for services rendered to the fund by the fund's
independent auditors:
Audit Audit-Related Tax All Other
Fiscal year ended Fees Fees Fees Fees
- ----------------- ---------- ------------- ------- ---------
October 31, 2004 $187,741* $-- $6,226 $3,685
October 31, 2003 $136,327 $-- $5,108 $--
*Includes fees of $ 16,537 billed by the fund's independent
auditor to the fund for audit procedures necessitated by regulatory
and litigation matters. These fees were reimbursed to the fund by
Putnam.
For the fiscal years ended October 31, 2004 and October 31, 2003,
the fund's independent auditors billed aggregate non-audit fees in
the amounts of $124,825 and $107,184 respectively, to the fund,
Putnam Management and any entity controlling, controlled by or under
common control with Putnam Management that provides ongoing services
to the fund.
Audit Fees represents fees billed for the fund's last two fiscal
years.
Audit-Related Fees represents fees billed in the fund's last two
fiscal years for services traditionally performed by the fund's
auditor, including accounting consultation for proposed transactions
or concerning financial accounting and reporting standards and other
audit or attest services not required by statute or regulation.
Tax Fees represent fees billed in the fund's last two fiscal years
for tax compliance, tax planning and tax advice services. Tax
planning and tax advice services include assistance with tax audits,
employee benefit plans and requests for rulings or technical advice
from taxing authorities.
All Other Fees Fees represent fees billed for services relating to
fund expense processing.
Pre-Approval Policies of the Audit and Pricing Committee. The Audit
and Pricing Committee of the Putnam funds has determined that, as a
matter of policy, all work performed for the funds by the funds'
independent auditors will be pre-approved by the Committee and will
generally not be subject to pre-approval procedures.
Under certain circumstances, the Audit and Pricing Committee
believes that it may be appropriate for Putnam Investment
Management, LLC ("Putnam Management") and certain of its affiliates
to engage the services of the funds' independent auditors, but only
after prior approval by the Committee. Such requests are required
to be submitted in writing to the Committee and explain, among other
things, the nature of the proposed engagement, the estimated fees,
and why this work must be performed by that particular audit firm.
The Committee will review the proposed engagement at its next
meeting.
Since May 6, 2003, all work performed by the independent auditors
for the funds, Putnam Management and any entity controlling,
controlled by or under common control with Putnam Management that
provides ongoing services to the fund was pre-approved by the
Committee or a member of the Committee pursuant to the pre-approval
policies discussed above. Prior to that date, the Committee had a
general policy to pre-approve the independent auditor's engagements
for non-audit services with the funds, Putnam Management and any
entity controlling, controlled by or under common control with
Putnam Management that provides ongoing services to the fund.
The following table presents fees billed by the fund's principal
auditor for services required to be approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X.
Audit-Related Tax All Other Total Non-
Fiscal year ended Fees Fees Fees Audit Fees
- ----------------- ------------- ---- --------- ----------
October 31, 2004 $-- $-- $-- $--
October 31, 2003 $-- $-- $-- $--
Item 5. Audit Committee: Not applicable
- -------------------------
Item 6. Schedule of Investments: Not applicable
- --------------------------------
Item 7. Disclosure of Proxy Voting Policies and Procedures For Closed-End
- -------------------------------------------------------------------------
Management Investment Companies: Not applicable
--------------------------------
Item 8. Purchases of Equity Securities by Closed-End Management Investment
- --------------------------------------------------------------------------
Companies and Affiliated Purchasers: Not applicable
------------------------------------
Item 9. Submission of Matters to a Vote of Security Holders:
- ------------------------------------------------------------
Not applicable
Item 10. Controls and Procedures:
- --------------------------------
(a) The registrant's principal executive officer and principal
financial officer have concluded, based on their evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of a date within 90 days of
the filing date of this report on Form N-CSR, that the design and
operation of such procedures are generally effective to provide
reasonable assurance that information required to be disclosed by
the investment company in the reports that it files or submits under
the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the
Commission's rules and forms.
(b) Changes in internal control over financial reporting:
Not applicable
Item 11. Exhibits:
- ------------------
(a) The Code of Ethics of The Putnam Funds, which incorporates the
Code of Ethics of Putnam Investments, is filed herewith.
(b) A separate certification for each principal executive officer and
principal financial officer of the registrant as required by Rule 30a-2
under the Investment Company Act of 1940, as amended, and the officer
certifications as required by Section 906 of the Sarbanes-Oxley Act
of 2002 are filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NAME OF REGISTRANT
By (Signature and Title): /s/Michael T. Healy
--------------------------
Michael T. Healy
Principal Accounting Officer
Date: December 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934
an the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By (Signature and Title): /s/Charles E. Porter
---------------------------
Charles E. Porter
Principal Executive Officer
Date: December 29, 2004
By (Signature and Title): /s/Steven D. Krichmar
---------------------------
Steven D. Krichmar
Principal Financial Officer
Date: December 29, 2004