-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VK9apzPAW2/EY4WCpnw4ew2YomX1EY5jwkpRHr278RsBbQj6/EaLOZSbjSjCNQTi vm9T67bM1T8cuEDnxui6/w== 0000928816-02-000950.txt : 20021216 0000928816-02-000950.hdr.sgml : 20021216 20021216095542 ACCESSION NUMBER: 0000928816-02-000950 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021031 FILED AS OF DATE: 20021216 EFFECTIVENESS DATE: 20021216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PUTNAM FUND FOR GROWTH & INCOME CENTRAL INDEX KEY: 0000081260 IRS NUMBER: 046013678 STATE OF INCORPORATION: MA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-00781 FILM NUMBER: 02857961 BUSINESS ADDRESS: STREET 1: ONE POST OFFICE SQ STREET 2: MAIKLSTOP A 14 CITY: BOSTON STATE: MA ZIP: 02109 BUSINESS PHONE: 6172921000 FORMER COMPANY: FORMER CONFORMED NAME: PUTNAM GROWTH FUND DATE OF NAME CHANGE: 19841025 N-30D 1 pfg.txt PUTNAM FUND FOR GROWTH AND INCOME The Putnam Fund for Growth and Income ANNUAL REPORT ON PERFORMANCE AND OUTLOOK 10-31-02 [GRAPHIC OMITTED: GREEN LEAF] [SCALE LOGO OMITTED] FROM THE TRUSTEES [GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM III] Dear Fellow Shareholder: We wish this report to shareholders of The Putnam Fund for Growth and Income carried more positive results for the fiscal year ended October 31, 2002. However, it is of some comfort to note that despite negative returns on an absolute basis in the challenging stock market environment, your fund slightly outperformed its benchmark on a relative basis, and came in only slightly below the Lipper average for its peer group. You will find the details on page 7. This is also an appropriate time to counsel patience; history has shown again and again that long-term investors who persevere through good times and bad often can benefit from the bargains they obtained when markets were down. As equities continue their long, nerve-wracking struggle, investors should not abandon their long-term perspective. In any case, it is never easy to report investment losses. In the following report, the fund's management team gives an overview of performance during the fiscal year just ended and offers its views of prospects for the fiscal year just begun. 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 18, 2002 REPORT FROM FUND MANAGEMENT This fund is managed by the Putnam Large-Cap Value Team In what was a very difficult environment for equities, The Putnam Fund for Growth and Income declined during its 2002 fiscal year, which ended October 31, 2002. Investor confidence was undermined by terrorist activity, war in Afghanistan, accounting scandals, executives charged with criminal offenses, and an anemic economy. Investors quelled their uncertainty by moving assets out of equities into the comparatively safer universe of government bonds. For the year, the fund's return was somewhat better than that of its benchmark, the S&P 500/Barra Value Index, but slightly behind the average return for its competitive universe, the Lipper Large-Cap Value Funds category. While it is always disappointing to report a negative return, we are hopeful that the worst is over, and that fiscal 2003 will reflect a favorable change in investor confidence. Total return for 12 months ended 10/31/02 Class A Class B Class C Class M NAV POP NAV CDSC NAV CDSC NAV POP - ----------------------------------------------------------------------- -14.71% -19.62% -15.37% -19.51% -15.30% -16.13% -15.14% -18.12% - ----------------------------------------------------------------------- Past performance does not indicate future results. Performance information for longer periods and explanation of performance calculation methods begin on page 7. * EASY-TO-UNDERSTAND BUSINESSES WERE PORTFOLIO LEADERS In the hostile investment environment of the past year, the equities that performed best were those of companies with easy-to-comprehend, simple business models, strong financial positions, low financial risk, a seasoned and ethical management team, and no history of accounting irregularities. The portfolio's emphasis on consumer staples served shareholders well, as investors preferred steady companies with products and brands that are household names. The fund benefited from strong performers, including Anheuser-Busch, Procter & Gamble, Kellogg, and Sara Lee, all of which had been in the portfolio for some time. Consumer staples had done so well that toward the end of the period we had begun to trim positions and lock in profits. We also took some profits in the consumer cyclicals area, as retail stocks did relatively well in May and June. [GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS] TOP INDUSTRY SECTORS* Banking 11.5% Pharmaceuticals 10.9% Financial 8.6% Oil and gas 8.1% Computers 5.1% Footnote reads: *Based on net assets as of 10/31/02. Holdings will vary over time. Stocks of traditional banks, those offering savings and checking accounts and consumer loans, were particularly inexpensive at the beginning of the period. We increased the fund's exposure at that time. Spurred by consumer borrowing in a low interest-rate environment, the fund's holdings in this area -- including Wells Fargo, U.S. Bancorp, and Bank of America -- enjoyed double-digit returns over the period. Where appropriate, we have trimmed these positions, and are now gradually building up the portfolio's exposure to capital markets-related holdings. We believe that these stocks are currently inexpensive after months of underperformance due to unusually low levels of M&A (mergers and acquisitions) and IPO (initial public offering) activity. 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 an appropriate core holding for investors who wish to diversify a portfolio that emphasizes growth investments. Following the events of September 11, as America stepped up its war on terrorism, Lockheed Martin and other defense stocks performed relatively well. As these long-term holdings appreciated, we scaled back the fund's exposure somewhat, seeking to lock in gains. We consider their potential for future growth to be somewhat limited. The fund's cautious stance on telecommunications services was beneficial. The sector suffered throughout the year because of uncertainty in the regulatory environment. In addition, the industry is still struggling with excess capacity, which inhibits profitability. The portfolio remains underweighted in telecommunications stocks because we are not yet convinced that valuations in this sector have reached their lows, and the outlook for the industry remains quite uncertain. * TYCO REMAINED A LARGE HOLDING For much of the period, Tyco was a large portfolio holding. After the Enron debacle exposed the pitfalls of complicated business deals and convoluted corporate structures, the axe fell on many companies that were thought to be overly complex. Tyco, which had grown through numerous acquisitions, was faulted for its relatively opaque merger accounting. However, our rigorous and ongoing assessment of the conglomerate's many businesses indicated that they were generally well managed and in good financial condition, and in our opinion the stock was undervalued. We built up our position in Tyco as the company's share price fell. "As we enter 2003, there is every possibility that the economy will begin to approach its economic potential, make inroads into the unemployment situation, and set the stage for what could be an exciting 2003 for the equity market." - -- Dr. Robert Goodman, Senior Economic Advisor, Putnam Investments, November 11, 2002 We could not have anticipated the alleged misconduct of Tyco's chief executive. The subsequent fall in the stock price dampened fund performance over the period. Nevertheless, as the price fell we purchased more shares because we were convinced that the stock represented strong, long-term value. In recent months, the company has taken aggressive measures to replace top management, fix governance issues, and regain the confidence of investors. Our original theses about the company are unchanged. We continue to own the stock and believe that it has the potential to be a strong performer over time. * PORTFOLIO POSITIONED THROUGH INCREMENTAL MOVES As a result of strong performance in certain sectors, we generally expect to trim the fund's positions where appropriate and redeploy assets where valuations look more attractive. During the latter half of the fiscal year, we trimmed consumer staples in favor of capital goods, technology, and pharmaceuticals. [GRAPHIC OMITTED: TOP 10 HOLDINGS] TOP 10 HOLDINGS Citigroup, Inc. Financial Exxon Mobil Corp. Oil and gas Pfizer, Inc. Pharmaceuticals Merck & Company, Inc. Pharmaceuticals Philip Morris Companies, Inc. Tobacco Hewlett-Packard Co. Computers Bank of America Corp. Banking General Electric Co. Conglomerates Royal Dutch Petroleum Co. ADR Netherlands Oil and gas Fannie Mae Financial Footnote reads: These holdings represent 27.4% of the fund's net assets as of 10/31/02. Portfolio holdings will vary over time. In general, we currently favor companies that serve businesses, because we believe that business spending will ultimately push the economy into a more rapid growth phase. Technology stands to benefit from increased business outlays. We also believe the outlook for pharmaceutical companies will improve because the Food and Drug Administration is about to name a new chief, and we think that the outcome of the national elections is likely to reduce the regulatory pressure on the industry. We are more optimistic that cyclical areas of the market will outperform over the next year, should the economy rebound. * NEAR TERM OUTLOOK FAVORS EQUITIES No doubt, the market declines of recent months will go on record as having been among the worst in several decades. In the late 1990s, we believed that the pace of growth was unsustainable. We believe the market's recent decline is similarly unsustainable. Although economic recovery is proceeding slower than many anticipated, we see corporate earnings improving and we do not anticipate the economy will experience a double-dip recession in the near future. The high-profile cases of executive malfeasance that captured headlines throughout the year unraveled investor confidence. Yet we believe those incidents of unscrupulous behavior are the exception, and that the majority of public corporations play by the rules. In August of 2002, CEOs complied with new regulations requiring them to certify the accuracy of their company financial statements. Under the new rules, penalties for noncompliance are now more severe. We believe these new regulations will go a long way towards restoring confidence in corporate leadership and financial reporting. Recent news reports from Washington have investors bracing for a possible conflict with Iraq. We believe that uncertainty over conflict with Iraq may lead to greater volatility in the marketplace. However, at this time we think it is unlikely that such a war would have a long-term devastating effect on the market. As this report was being written, large-cap stocks were once again outperforming small caps. We think that some investors may view this rotation in leadership as a sign of economic recovery. Of course, we cannot predict whether this trend will continue. As a result of the Federal Reserve Board's numerous rate cuts, interest rates on Treasury bonds are at historic lows. In our opinion, Treasuries no longer represent a compelling alternative to equities, which offer the potential for capital appreciation as well as competitive dividend yields. Equity valuations are currently very attractive across the board. In an environment that offers solid value, improving corporate profitability, high productivity, and an apparent renewal of investor confidence, we are cautiously optimistic that the portfolio has the potential to achieve improving performance going forward. The views expressed here are exclusively those of Putnam Management. They are not meant as investment advice. Although the described holdings were viewed favorably as of 10/31/02, there is no guarantee the fund will continue to hold these securities in the future. The fund is managed by the Putnam Large-Cap Value Team. The members of the team are Hugh Mullin (Portfolio Leader), David King (Portfolio Member), Chris Miller (Portfolio Member), Mike Abata, Bart Geer, Deborah Kuenstner, Cole Lannum, and Jeanne Mockard. 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. PERFORMANCE SUMMARY This section provides information about your fund's performance, which should always be considered in light of its investment strategy. TOTAL RETURN FOR PERIODS ENDED 10/31/02 Class A Class B Class C Class M (inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 1 year -14.71% -19.62% -15.37% -19.51% -15.30% -16.13% -15.14% -18.12% - ------------------------------------------------------------------------------ 5 years -1.22 -6.89 -4.90 -6.23 -4.75 -4.75 -3.64 -7.00 Annual average -0.25 -1.42 -1.00 -1.28 -0.97 -0.97 -0.74 -1.44 - ------------------------------------------------------------------------------ 10 years 129.48 116.26 112.73 112.73 113.08 113.08 118.27 110.58 Annual average 8.66 8.02 7.84 7.84 7.86 7.86 8.12 7.73 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.16 12.01 11.11 11.11 11.32 11.32 11.39 11.31 - ------------------------------------------------------------------------------ COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/02 S&P 500/Barra Consumer Value Index price index - ------------------------------------------------------------------------------ 1 year -15.78% 2.08% - ------------------------------------------------------------------------------ 5 years 0.22 12.26 Annual average 0.04 2.34 - ------------------------------------------------------------------------------ 10 years 152.84 27.95 Annual average 9.72 2.50 - ------------------------------------------------------------------------------ Annual average (life of fund) --* 4.21 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be less or more than those shown. Investment return and principal value will fluctuate and you may have a gain or a loss when you sell your shares. Performance assumes reinvestment of distributions and does not account for taxes. Returns at public offering price (POP) for class A and M shares reflect a sales charge of 5.75% and 3.50%, respectively. Class B share returns reflect the applicable contingent deferred sales charge (CDSC), which is 5% in the first year, declining to 1% in the sixth year, and is eliminated thereafter. Class C shares reflect a 1% CDSC the first year that is eliminated thereafter. Performance for class B, C, and M 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. *Index did not exist at the fund's inception. [GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT] GROWTH OF A $10,000 INVESTMENT Cumulative total return of a $10,000 investment since 10/31/92 Fund's class A S&P 500/Barra Consumer price Date shares at POP Value Index index 10/31/92 9,425 10,000 10,000 10/31/93 11,191 12,416 10,275 10/31/94 11,498 12,688 10,543 10/31/95 14,143 15,610 10,839 10/31/96 17,522 19,452 11,164 10/31/97 21,893 25,230 11,396 10/31/98 24,553 28,191 11,559 10/31/99 27,776 33,552 11,855 10/31/00 28,863 36,800 12,264 10/31/01 25,356 30,023 12,525 10/31/02 $21,626 $25,284 $12,795 Footnote reads: Past performance does not indicate future results. At the end of the same time period, a $10,000 investment in the fund's class B and class C shares would have been valued at $21,273 and $21,308, respectively, and no contingent deferred sales charges would apply; a $10,000 investment in the fund's class M shares would have been valued at $21,827 ($21,058 at public offering price). See first page of performance section for performance calculation method. PRICE AND DISTRIBUTION INFORMATION 12 MONTHS ENDED 10/31/02 Class A Class B Class C Class M - ------------------------------------------------------------------------------ Distributions (number) 4 4 4 4 - ------------------------------------------------------------------------------ Income $0.2093 $0.0763 $0.0833 $0.1223 - ------------------------------------------------------------------------------ Capital gains Long-term 0.3187 0.3187 0.3187 0.3187 - ------------------------------------------------------------------------------ Short-term -- -- -- -- - ------------------------------------------------------------------------------ Total $0.5280 $0.3950 $0.4020 $0.4410 - ------------------------------------------------------------------------------ Share value: NAV POP NAV NAV NAV POP - ------------------------------------------------------------------------------ 10/31/01 $16.86 $17.89 $16.62 $16.79 $16.75 $17.36 - ------------------------------------------------------------------------------ 10/31/02 13.95 14.80 13.75 13.90 13.86 14.36 - ------------------------------------------------------------------------------ Current return (end of period) - ------------------------------------------------------------------------------ Current dividend rate 1 1.43% 1.35% 0.55% 0.60% 0.87% 0.84% - ------------------------------------------------------------------------------ Current 30-day SEC yield 2 1.82 1.71 1.10 1.11 1.34 1.29 - ------------------------------------------------------------------------------ 1 Most recent distribution, excluding capital gains, annualized and divided by NAV or POP at end of period. 2 Based only on investment income, calculated using SEC guidelines. TOTAL RETURN FOR PERIODS ENDED 9/30/02 (most recent calendar quarter) Class A Class B Class C Class M (inception dates) (11/6/57) (4/27/92) (7/26/99) (5/1/95) NAV POP NAV CDSC NAV CDSC NAV POP - ------------------------------------------------------------------------------ 1 year -21.26% -25.81% -21.84% -25.66% -21.81% -22.58% -21.64% -24.37% - ------------------------------------------------------------------------------ 5 years -12.52 -17.56 -15.78 -16.96 -15.62 -15.62 -14.65 -17.64 Annual average -2.64 -3.79 -3.38 -3.65 -3.34 -3.34 -3.12 -3.81 - ------------------------------------------------------------------------------ 10 years 110.75 98.60 95.45 95.45 95.76 95.76 100.40 93.42 Annual average 7.74 7.10 6.93 6.93 6.95 6.95 7.20 6.82 - ------------------------------------------------------------------------------ Annual average (life of fund) 12.00 11.86 10.95 10.95 11.17 11.17 11.24 11.15 - ------------------------------------------------------------------------------ Past performance does not indicate future results. More recent returns may be more or less than those shown. Investment return and principal value will fluctuate, and you may have a gain or a loss when you sell your shares. See first page of performance section for performance calculation method. TERMS AND DEFINITIONS Total return shows how the value of the fund's shares changed over time, assuming you held the shares through the entire period and reinvested all distributions in the fund. Net asset value (NAV) is the price, or value, of one share of a mutual fund, without a sales charge. NAVs fluctuate with market conditions. The NAV is calculated by dividing the net value of all the fund's assets by the number of outstanding shares. Public offering price (POP) is the price of a mutual fund share plus the maximum sales charge levied at the time of purchase. POP performance figures shown here assume the 5.75% maximum sales charge for class A shares and 3.50% for class M shares. Contingent deferred sales charge (CDSC) is a charge applied at the time of the redemption of class B or C shares and assumes redemption at the end of the period. Your fund's class B CDSC declines from a 5% maximum during the first year to 1% during the sixth year. After the sixth year, the CDSC no longer applies. The CDSC for class C shares is 1% for one year after purchase. Class A shares are generally subject to an initial sales charge and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). Class B shares may be subject to a sales charge upon redemption. Class C shares are not subject to an initial sales charge and are subject to a contingent deferred sales charge only if the shares are redeemed during the first year. Class M shares have a lower initial sales charge and a higher 12b-1 fee than class A shares and no sales charge on redemption (except on certain redemptions of shares bought without an initial sales charge). COMPARATIVE BENCHMARKS S&P 500/Barra Value Index is an unmanaged index of capitalization-weighted stocks chosen for their value orientation. 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. Consumer price index (CPI) is a commonly used measure of inflation; it does not represent an investment return. Lipper Inc. is a third-party industry ranking entity that ranks funds (without sales charges) with similar current investment styles or objectives as determined by Lipper. A GUIDE TO THE FINANCIAL STATEMENTS These sections of the report, as well as the accompanying Notes, preceded by the Report of independent accountants, 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 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 ACCOUNTANTS 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, 2002, and the results of its operations, the changes in its net assets and the financial highlights for 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 auditing standards generally accepted in the United States of America, which 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, 2002 by correspondence with the custodian, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts December 5, 2002
THE FUND'S PORTFOLIO October 31, 2002 COMMON STOCKS (98.9%) (a) NUMBER OF SHARES VALUE Aerospace and Defense (2.1%) - ------------------------------------------------------------------------------------------------------------------- 4,848,489 Boeing Co. (The) $144,242,548 907,614 Goodrich Corp. 13,704,971 1,355,760 Lockheed Martin Corp. 78,498,504 2,046,300 Rockwell Collins, Inc. 46,103,139 2,104,460 United Technologies Corp. 129,782,048 ------------- 412,331,210 Agriculture (--%) - ------------------------------------------------------------------------------------------------------------------- 577,132 Monsanto Co. 9,539,992 Airlines (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,574,627 Southwest Airlines Co. 22,989,554 Automotive (0.6%) - ------------------------------------------------------------------------------------------------------------------- 6,669,577 Ford Motor Co. 56,424,621 772,000 General Motors Corp. 25,669,000 818,291 Lear Corp. (NON) 29,908,536 ------------- 112,002,157 Banking (11.5%) - ------------------------------------------------------------------------------------------------------------------- 6,285,142 Bank of America Corp. 438,702,912 5,462,152 Bank of New York Company, Inc. (The) 142,015,952 3,990,098 Bank One Corp. 153,898,080 1,285,802 BB&T Corp. 46,610,323 169,429 Charter One Financial, Inc. 5,130,310 2,640,600 Comerica, Inc. 115,288,596 820,700 Fifth Third Bancorp 52,114,450 791,817 First Tennessee National Corp. 29,360,574 3,696,229 FleetBoston Financial Corp. 86,454,796 497,600 M&T Bank Corp. 40,763,392 960,000 Mellon Financial Corp. 27,158,400 2,165,557 National City Corp. 58,751,561 492,520 PNC Financial Svcs. Group 20,025,863 1,715,502 Sovereign Bancorp, Inc. 24,154,268 445,938 SunTrust Banks, Inc. 27,130,868 2,317,900 Synovus Financial Corp. 47,493,771 17,862,933 U.S. Bancorp 376,729,257 1,901,631 Wachovia Corp. 66,157,742 5,084,358 Washington Mutual, Inc. 181,816,642 6,481,504 Wells Fargo & Co. 327,121,507 257,437 Zions Bancorporation 10,351,542 ------------- 2,277,230,806 Beverage (3.1%) - ------------------------------------------------------------------------------------------------------------------- 4,073,246 Anheuser-Busch Companies, Inc. 214,904,459 6,537,428 Coca-Cola Co. (The) 303,859,653 2,843,539 Coca-Cola Enterprises, Inc. 67,789,970 403,700 Pepsi Bottling Group, Inc. (The) 10,879,715 259,735 PepsiCo, Inc. 11,454,314 ------------- 608,888,111 Building Materials (--%) - ------------------------------------------------------------------------------------------------------------------- 88,462 Vulcan Materials Co. 2,968,785 Cable Television (0.1%) - ------------------------------------------------------------------------------------------------------------------- 1,268,400 Comcast Corp. Class A (NON) 29,185,884 Chemicals (2.5%) - ------------------------------------------------------------------------------------------------------------------- 732,391 3M Co. 92,969,714 847,000 Avery Dennison Corp. 52,717,280 2,948,100 Dow Chemical Co. (The) 76,621,119 4,111,877 E.I. du Pont de Nemours & Co. 169,614,926 1,049,375 Eastman Chemical Co. 38,134,288 690,100 Hercules, Inc. (NON) 6,624,960 1,102,620 PPG Industries, Inc. 51,856,219 ------------- 488,538,506 Coal (0.1%) - ------------------------------------------------------------------------------------------------------------------- 543,500 Arch Coal, Inc. 9,435,160 237,200 Peabody Energy Corp. 6,107,900 ------------- 15,543,060 Commercial and Consumer Services (0.2%) - ------------------------------------------------------------------------------------------------------------------- 239,819 Cintas Corp. 11,336,244 1,305,488 Sabre Holdings Corp. (NON) 25,039,260 ------------- 36,375,504 Computers (5.1%) - ------------------------------------------------------------------------------------------------------------------- 1,868,477 Dell Computer Corp. (NON) 53,457,127 558,700 EMC Corp. (NON) 2,854,957 29,690,888 Hewlett-Packard Co. 469,116,030 5,233,710 IBM Corp. 413,149,067 758,761 NCR Corp. (NON) 16,874,845 17,047,900 Sun Microsystems, Inc. (NON) 50,478,832 ------------- 1,005,930,858 Conglomerates (4.4%) - ------------------------------------------------------------------------------------------------------------------- 23,845 Berkshire Hathaway, Inc. Class B (NON) 58,658,700 17,329,449 General Electric Co. 437,568,587 3,514,853 Honeywell International, Inc. 84,145,581 174,996 Textron, Inc. 7,174,836 19,157,039 Tyco Intl., Ltd. (Bermuda) 277,010,784 ------------- 864,558,488 Consumer Finance (2.0%) - ------------------------------------------------------------------------------------------------------------------- 1,532,980 Capital One Financial Corp. 46,709,901 5,419,724 Household International, Inc. 128,772,642 10,139,429 MBNA Corp. 205,931,803 2,207,338 Providian Financial Corp. (NON) 9,822,654 ------------- 391,237,000 Consumer Goods (3.7%) - ------------------------------------------------------------------------------------------------------------------- 395,814 Avon Products, Inc. 19,193,021 631,577 Clorox Co. 28,376,755 1,402,700 Colgate-Palmolive Co. 77,120,446 2,229,939 Fortune Brands, Inc. 111,630,746 2,684,226 Gillette Co. (The) 80,204,673 2,413,033 Kimberly-Clark Corp. 124,271,200 1,396,385 Newell Rubbermaid, Inc. 45,270,802 2,524,150 Procter & Gamble Co. 223,261,068 387,875 Unilever NV (Netherlands) 24,827,879 ------------- 734,156,590 Containers (--%) - ------------------------------------------------------------------------------------------------------------------- 415,740 Sealed Air Corp. (NON) 6,369,137 Distribution (0.1%) - ------------------------------------------------------------------------------------------------------------------- 737,089 SYSCO Corp. 23,350,980 Electric Utilities (3.5%) - ------------------------------------------------------------------------------------------------------------------- 146,844 Allegheny Energy, Inc. 837,011 1,821,185 American Electric Power Company, Inc. 46,695,183 3,819,125 CenterPoint Energy, Inc. 27,039,405 537,200 Dominion Resources, Inc. 25,785,600 4,299,310 Duke Energy Corp. 88,092,862 6,767,785 Edison International (NON) 68,016,239 1,350,712 Entergy Corp. 59,552,892 2,035,620 Exelon Corp. 102,595,248 1,741,237 FirstEnergy Corp. 56,503,141 641,600 FPL Group, Inc. 37,841,568 4,411,698 PG&E Corp. (NON) 47,866,923 634,498 PPL Corp. 21,959,976 1,974,385 Progress Energy, Inc. 82,371,342 2,002,039 TXU Corp. 28,729,260 ------------- 693,886,650 Electrical Equipment (0.5%) - ------------------------------------------------------------------------------------------------------------------- 2,062,245 Emerson Electric Co. 99,358,964 513,684 Rockwell International Corp. 8,501,470 ------------- 107,860,434 Electronics (0.8%) - ------------------------------------------------------------------------------------------------------------------- 771,000 Agilent Technologies, Inc. (NON) 10,601,250 634,847 Conexant Systems, Inc. (NON) 780,862 920,414 Flextronics International, Ltd. (Singapore) (NON) 7,694,661 5,706,874 LSI Logic Corp. (NON) 33,670,557 6,625,160 Motorola, Inc. 60,752,717 24,377,226 Solectron Corp. (NON) 54,848,759 ------------- 168,348,806 Energy (1.1%) - ------------------------------------------------------------------------------------------------------------------- 398,500 BJ Services Co. (NON) 12,086,505 7,063,771 Halliburton Co. 114,291,815 1,701,100 Schlumberger, Ltd. 68,231,121 1,149,000 Transocean Sedco Forex, Inc. (NON) 25,255,020 ------------- 219,864,461 Financial (8.6%) - ------------------------------------------------------------------------------------------------------------------- 2,799,600 CIT Group, Inc. 49,860,876 24,876,117 Citigroup, Inc. 919,172,516 6,350,243 Fannie Mae 424,577,247 4,405,745 Freddie Mac 271,305,777 950,547 MGIC Investment Corp. 39,884,952 ------------- 1,704,801,368 Food (1.3%) - ------------------------------------------------------------------------------------------------------------------- 2,303,976 Archer Daniels Midland Co. 31,380,153 50,191 JM Smucker Co. (The) 1,837,493 2,340,650 Kellogg Co. 74,573,109 1,187,260 Kraft Foods, Inc. Class A 46,896,770 4,757,544 Sara Lee Corp. 108,614,730 ------------- 263,302,255 Forest Products and Packaging (0.9%) - ------------------------------------------------------------------------------------------------------------------- 322,700 Boise Cascade Corp. 7,677,033 3,499,352 Georgia-Pacific Corp. 42,692,094 445,300 Owens-Illinois, Inc. (NON) 5,339,147 1,782,782 Smurfit-Stone Container Corp. (NON) 23,193,994 2,331,529 Weyerhaeuser Co. 105,618,264 ------------- 184,520,532 Gaming & Lottery (0.4%) - ------------------------------------------------------------------------------------------------------------------- 986,877 Harrah's Entertainment, Inc. (NON) 41,448,834 981,703 MGM Mirage, Inc. (NON) 30,530,963 ------------- 71,979,797 Health Care Services (2.2%) - ------------------------------------------------------------------------------------------------------------------- 1,334,361 Cardinal Health, Inc. 92,351,125 1,381,879 CIGNA Corp. 49,941,107 1,871,338 HCA, Inc. 81,384,490 1,250,184 Healthsouth Corp. (NON) 5,438,300 37,892 McKesson Corp. 1,129,561 664,036 Quest Diagnostics, Inc. (NON) 42,385,418 10,607,300 Service Corp. International (NON) 33,412,995 989,761 UnitedHealth Group, Inc. 90,018,763 464,023 Wellpoint Health Networks, Inc. (NON) 34,899,170 ------------- 430,960,929 Household Furniture and Appliances (--%) - ------------------------------------------------------------------------------------------------------------------- 166,199 Whirlpool Corp. 7,746,535 Insurance (2.1%) - ------------------------------------------------------------------------------------------------------------------- 3,401,947 ACE, Ltd. (Bermuda) 104,609,870 835,600 American International Group, Inc. 52,266,780 77,056 Hartford Financial Services Group, Inc. (The) 3,043,712 218,357 Jefferson-Pilot Corp. 8,767,034 115,745 John Hancock Financial Svcs. 3,391,329 78,971 Loews Corp. 3,406,809 1,258,400 Metlife, Inc. 30,050,592 721,714 Principal Financial Group 20,244,078 468,270 Torchmark Corp. 16,764,066 3,117,353 Travelers Property Casualty Corp. Class A (NON) 41,616,663 2,102,682 Travelers Property Casualty Corp. Class B (NON) 28,428,261 1,440,896 UnumProvident Corp. 29,567,186 914,700 XL Capital, Ltd. Class A (Bermuda) 69,654,405 ------------- 411,810,785 Investment Banking/Brokerage (3.2%) - ------------------------------------------------------------------------------------------------------------------- 871,940 Goldman Sachs Group, Inc. (The) 62,430,904 9,844,212 JPMorgan Chase & Co. 204,267,399 102,700 Lehman Brothers Holdings, Inc. 5,470,829 3,835,305 Merrill Lynch & Company, Inc. 145,549,825 5,243,272 Morgan Stanley Dean Witter & Co. 204,068,146 679,280 Stilwell Financial, Inc. 7,954,369 ------------- 629,741,472 Lodging/Tourism (0.5%) - ------------------------------------------------------------------------------------------------------------------- 1,247,357 Carnival Corp. 32,580,965 837,243 Cendant Corp. (NON) 9,628,295 1,076,400 Marriott International, Inc. Class A 33,293,052 1,215,790 Royal Caribbean Cruises, Ltd. 22,321,904 472,216 Starwood Hotels & Resorts Worldwide, Inc. 11,002,633 ------------- 108,826,849 Machinery (0.6%) - ------------------------------------------------------------------------------------------------------------------- 1,868,100 Ingersoll-Rand Co. Class A (Bermuda) 72,855,900 1,144,000 Parker-Hannifin Corp. 49,912,720 ------------- 122,768,620 Manufacturing (0.4%) - ------------------------------------------------------------------------------------------------------------------- 826,655 Dover Corp. 20,732,507 163,414 EnPro Industries, Inc. (NON) 472,266 1,039,963 Illinois Tool Works, Inc. 63,853,728 ------------- 85,058,501 Media (1.7%) - ------------------------------------------------------------------------------------------------------------------- 15,393,431 Liberty Media Corp. Class A (South Korea) (NON) 127,303,674 1,043,117 USA Interactive (NON) 26,432,585 10,651,509 Walt Disney Co. (The) 177,880,200 ------------- 331,616,459 Medical Technology (0.1%) - ------------------------------------------------------------------------------------------------------------------- 462,849 Becton, Dickinson and Co. 13,658,674 Metals (0.4%) - ------------------------------------------------------------------------------------------------------------------- 1,994,600 Alcoa, Inc. 44,000,876 862,760 Barrick Gold Corp. 13,001,793 621,800 Freeport-McMoRan Copper & Gold, Inc. Class B (NON) 7,585,960 255,100 Phelps Dodge Corp. (NON) 7,913,202 ------------- 72,501,831 Natural Gas Utilities (0.6%) - ------------------------------------------------------------------------------------------------------------------- 6,361,935 Dynegy, Inc. Class A 4,326,116 5,600,138 El Paso Corp. 43,401,070 2,427,300 NiSource, Inc. 40,098,996 991,459 Sempra Energy 21,950,902 207,000 Williams Companies, Inc. (The) 389,160 ------------- 110,166,244 Office Equipment & Supplies (0.1%) - ------------------------------------------------------------------------------------------------------------------- 438,905 Pitney Bowes, Inc. 14,725,263 Oil & Gas (8.1%) - ------------------------------------------------------------------------------------------------------------------- 1,515,544 Burlington Resources, Inc. 62,440,413 2,713,113 Chevron Texaco Corp. 183,487,832 809,989 ConocoPhillips 39,284,467 573,127 Devon Energy Corp. 28,942,914 21,568,566 Exxon Mobil Corp. 725,997,932 1,888,385 Marathon Oil Corp. 39,467,247 538,130 Occidental Petroleum Corp. 15,352,849 10,038,039 Royal Dutch Petroleum Co. ADR (Netherlands) 429,427,308 3,062,300 Unocal Corp. 84,641,972 ------------- 1,609,042,934 Pharmaceuticals (10.8%) - ------------------------------------------------------------------------------------------------------------------- 5,849,442 Abbott Laboratories 244,916,137 8,498,064 Bristol-Myers Squibb Co. 209,137,355 1,307,120 King Pharmaceuticals, Inc. (NON) 20,064,292 2,299,463 Lilly (Eli) & Co. 127,620,197 10,120,776 Merck & Company, Inc. 548,950,890 17,303,032 Pfizer, Inc. 549,717,327 2,269,614 Pharmacia Corp. 97,593,402 10,059,406 Schering-Plough Corp. 214,768,318 3,957,532 Wyeth 132,577,322 ------------- 2,145,345,240 Photography/Imaging (0.4%) - ------------------------------------------------------------------------------------------------------------------- 1,968,991 Eastman Kodak Co. 64,878,253 3,127,582 Xerox Corp. (NON) 20,767,144 ------------- 85,645,397 Power Producers (--%) - ------------------------------------------------------------------------------------------------------------------- 761,501 Mirant Corp. (NON) 1,629,612 3,011,416 Reliant Resources, Inc. (NON) 5,661,462 ------------- 7,291,074 Publishing (0.7%) - ------------------------------------------------------------------------------------------------------------------- 1,465,535 McGraw-Hill Companies, Inc. (The) 94,527,008 967,189 Tribune Co. 46,473,431 ------------- 141,000,439 Railroads (1.0%) - ------------------------------------------------------------------------------------------------------------------- 2,751,170 Burlington Northern Santa Fe Corp. 70,787,604 251,172 CSX Corp. 6,932,347 1,666,951 Norfolk Southern Corp. 33,672,410 1,457,554 Union Pacific Corp. 86,068,564 ------------- 197,460,925 Real Estate (0.5%) - ------------------------------------------------------------------------------------------------------------------- 279,300 Boston Properties, Inc. (R) 9,971,010 3,455,850 Equity Office Properties Trust (R) 83,216,868 ------------- 93,187,878 Regional Bells (3.1%) - ------------------------------------------------------------------------------------------------------------------- 7,501,052 BellSouth Corp. 196,152,510 2,901,008 Qwest Communications International, Inc. (NON) 9,834,417 10,972,283 SBC Communications, Inc. 281,548,782 3,464,438 Verizon Communications, Inc. 130,817,179 ------------- 618,352,888 Restaurants (0.3%) - ------------------------------------------------------------------------------------------------------------------- 642,500 Darden Restaurants, Inc. 12,194,650 886,000 McDonald's Corp. 16,045,460 1,041,210 Starbucks Corp. (NON) 24,822,446 ------------- 53,062,556 Retail (2.8%) - ------------------------------------------------------------------------------------------------------------------- 1,507,100 Albertsons, Inc. 33,623,401 1,757,689 Federated Department Stores, Inc. (NON) 53,961,052 5,460,480 JC Penney Company, Inc. (Holding Co.) 104,022,144 2,646,466 Kroger Co. (NON) 39,273,555 5,956,455 Limited, Inc. (The) 93,337,650 259,963 Lowe's Companies, Inc. 10,848,256 2,163,969 Office Depot, Inc. (NON) 31,139,514 1,491,811 RadioShack Corp. (NON) 31,178,850 12,019,500 Rite Aid Corp. (NON) 21,514,905 1,979,611 Safeway, Inc. (NON) 45,729,014 1,792,486 Staples, Inc. (NON) 27,640,134 209,180 Supervalu, Inc. 3,514,224 2,887,007 TJX Companies, Inc. (The) 59,241,384 ------------- 555,024,083 Software (1.5%) - ------------------------------------------------------------------------------------------------------------------- 1,426,095 Amdocs, Ltd. (Guernsey) (NON) 9,954,143 3,917,565 BMC Software, Inc. (NON) 62,445,986 14,754,644 Computer Associates International, Inc. 219,254,010 974,260 Compuware Corp. (NON) 4,726,135 217,060 Symantec Corp. (NON) 8,682,400 ------------- 305,062,674 Technology Services (0.1%) - ------------------------------------------------------------------------------------------------------------------- 709,285 Electronic Data Systems Corp. 10,681,832 289,673 SunGard Data Systems, Inc. (NON) 6,422,050 ------------- 17,103,882 Telecommunications (1.3%) - ------------------------------------------------------------------------------------------------------------------- 8,741,498 AT&T Corp. 113,989,134 8,543,585 AT&T Wireless Services, Inc. (NON) 58,694,429 6,452,749 Sprint Corp. (FON Group) 80,143,143 ------------- 252,826,706 Textiles (0.3%) - ------------------------------------------------------------------------------------------------------------------- 744,884 Jones Apparel Group, Inc. (NON) 25,802,782 112,731 Nike, Inc. 5,319,776 535,590 V. F. Corp. 19,720,424 ------------- 50,842,982 Tobacco (2.5%) - ------------------------------------------------------------------------------------------------------------------- 11,607,305 Philip Morris Companies, Inc. 472,997,679 388,900 R.J. Reynolds Tobacco Holdings, Inc. 15,769,895 ------------- 488,767,574 Toys (0.2%) - ------------------------------------------------------------------------------------------------------------------- 2,222,392 Mattel, Inc. 40,803,117 Waste Management (0.7%) - ------------------------------------------------------------------------------------------------------------------- 1,017,200 Republic Services, Inc. (NON) 20,933,976 4,901,015 Waste Management, Inc. 112,821,365 ------------- 133,755,341 ------------- Total Common Stocks (cost $21,397,251,640) $19,589,918,777 CONVERTIBLE PREFERRED STOCKS (0.5%) (a) NUMBER OF SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- 1,034,400 Ford Motor Company Capital Trust II $3.25 cum. cv. pfd. $38,014,200 1,125,500 General Motors Corp. $1.31 cv. pfd. 23,213,438 14,000 Hercules Trust II 6.50% units cum. cv. pfd. 7,308,000 634,000 Xerox Corp. 144A $3.75 cv. pfd. 29,956,500 ------------- Total Convertible Preferred Stocks (cost $119,804,057) $98,492,138 CONVERTIBLE BONDS AND NOTES (0.3%) (a) PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------------------------------------------- $23,900,000 Elan Finance Corp., Ltd. cv. Liquid Yield Option Notes zero %, 2018 (Bermuda) $6,811,500 14,298,000 Freeport-McMoRan Copper & Gold, Inc. 144A cv. sr. notes 8 1/4s, 2006 16,299,720 6,300,000 Providian Financial Corp. cv. sr. notes 3 1/4s, 2005 4,024,125 28,160,000 Service Corp. International cv. sub. notes 6 3/4s, 2008 21,824,000 12,000,000 Xerox Corp. cv. sub. debs. 0.57s, 2018 7,200,000 ------------- Total Convertible Bonds and Notes (cost $57,986,854) $56,159,345 SHORT-TERM INVESTMENTS (0.8%) (a) PRINCIPAL AMOUNT/SHARES VALUE - ------------------------------------------------------------------------------------------------------------------- $66,031,020 Short-term investments held as collateral for loaned securities with yields ranging from 1.72% to 1.99% and due dates ranging from November 1, 2002 to December 23, 2002 (d) $65,986,970 98,629,379 Short-term investments held in Putnam commingled cash account with yields ranging from 1.67% to 1.93% and due dates ranging from November 1, 2002 to December 20, 2002 (d) 98,629,379 ------------- Total Short-Term Investments (cost $164,616,349) $164,616,349 - ------------------------------------------------------------------------------------------------------------------- Total Investments (cost $21,739,658,900) $19,909,186,609 - ------------------------------------------------------------------------------------------------------------------- (a) Percentages indicated are based on net assets of $19,802,665,055. (NON) Non-income-producing security. (R) Real Estate Investment Trust. (d) See Note 1 to the financial statements. 144A after the name of a security represents those exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. ADR after the name of a foreign holding stands for American Depositary Receipts representing ownership of foreign securities on deposit with a custodian bank. - ------------------------------------------------------------------------------ Written Options Outstanding at October 31, 2002 (premiums received $1,675,844) Expiration Date/ Market Contract Amount Strike Price Value - ------------------------------------------------------------------------------ 3,046,989 Sun Microsystems, Inc. (Put) APR03/2.50USD $1,241,648 - ------------------------------------------------------------------------------ The accompanying notes are an integral part of these financial statements.
STATEMENT OF ASSETS AND LIABILITIES October 31, 2002 Assets - ------------------------------------------------------------------------------------------- Investments in securities, at value, including $61,427,340 of securities on loan (identified cost $21,739,658,900) (Note 1) $19,909,186,609 - ------------------------------------------------------------------------------------------- Dividends, interest and other receivables 32,599,575 - ------------------------------------------------------------------------------------------- Receivable for shares of the fund sold 7,918,098 - ------------------------------------------------------------------------------------------- Receivable for securities sold 34,290,470 - ------------------------------------------------------------------------------------------- Total assets 19,983,994,752 Liabilities - ------------------------------------------------------------------------------------------- Payable to subcustodian (Note 2) 1,883,234 - ------------------------------------------------------------------------------------------- Payable for securities purchased 20,785,776 - ------------------------------------------------------------------------------------------- Payable for shares of the fund repurchased 58,985,637 - ------------------------------------------------------------------------------------------- Payable for compensation of Manager (Note 2) 22,128,655 - ------------------------------------------------------------------------------------------- Payable for investor servicing and custodian fees (Note 2) 2,206,866 - ------------------------------------------------------------------------------------------- Payable for compensation of Trustees (Note 2) 877,008 - ------------------------------------------------------------------------------------------- Payable for administrative services (Note 2) 2,558 - ------------------------------------------------------------------------------------------- Payable for distribution fees (Note 2) 6,475,943 - ------------------------------------------------------------------------------------------- Written options outstanding, at value (premiums received $1,675,844) (Note 1) 1,241,648 - ------------------------------------------------------------------------------------------- Collateral on securities loaned, at value (Note 1) 65,986,970 - ------------------------------------------------------------------------------------------- Other accrued expenses 755,402 - ------------------------------------------------------------------------------------------- Total liabilities 181,329,697 - ------------------------------------------------------------------------------------------- Net assets $19,802,665,055 Represented by - ------------------------------------------------------------------------------------------- Paid-in capital (Notes 1 and 4) $23,191,117,979 - ------------------------------------------------------------------------------------------- Undistributed net investment income (Note 1) 11,461,971 - ------------------------------------------------------------------------------------------- Accumulated net realized loss on investments (Note 1) (1,569,876,800) - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (1,830,038,095) - ------------------------------------------------------------------------------------------- Total -- Representing net assets applicable to capital shares outstanding $19,802,665,055 Computation of net asset value and offering price - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class A share ($14,095,214,350 divided by 1,010,186,591 shares) $13.95 - ------------------------------------------------------------------------------------------- Offering price per class A share (100/94.25 of $13.95)* $14.80 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class B share ($4,009,396,029 divided by 291,514,497 shares)** $13.75 - ------------------------------------------------------------------------------------------- Net asset value and offering price per class C share ($132,853,688 divided by 9,561,023 shares)** $13.90 - ------------------------------------------------------------------------------------------- Net asset value and redemption price per class M share ($205,096,501 divided by 14,799,149 shares) $13.86 - ------------------------------------------------------------------------------------------- Offering price per class M share (100/96.50 of $13.86)* $14.36 - ------------------------------------------------------------------------------------------- Net asset value, offering price and redemption price per class Y share ($1,360,104,487 divided by 97,293,204 shares) $13.98 - ------------------------------------------------------------------------------------------- * 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, 2002 Investment income: - ------------------------------------------------------------------------------------------- Dividends (net of foreign tax of $1,247,129) $545,274,041 - ------------------------------------------------------------------------------------------- Interest 7,025,986 - ------------------------------------------------------------------------------------------- Securities lending 436,087 - ------------------------------------------------------------------------------------------- Total investment income 552,736,114 Expenses: - ------------------------------------------------------------------------------------------- Compensation of Manager (Note 2) 107,032,854 - ------------------------------------------------------------------------------------------- Investor servicing and custodian fees (Note 2) 34,594,192 - ------------------------------------------------------------------------------------------- Compensation of Trustees (Note 2) 347,122 - ------------------------------------------------------------------------------------------- Administrative services (Note 2) 78,746 - ------------------------------------------------------------------------------------------- Distribution fees -- Class A (Note 2) 43,323,802 - ------------------------------------------------------------------------------------------- Distribution fees -- Class B (Note 2) 61,578,207 - ------------------------------------------------------------------------------------------- Distribution fees -- Class C (Note 2) 1,676,476 - ------------------------------------------------------------------------------------------- Distribution fees -- Class M (Note 2) 2,098,896 - ------------------------------------------------------------------------------------------- Other 12,260,069 - ------------------------------------------------------------------------------------------- Total expenses 262,990,364 - ------------------------------------------------------------------------------------------- Expense reduction (Note 2) (1,983,324) - ------------------------------------------------------------------------------------------- Net expenses 261,007,040 - ------------------------------------------------------------------------------------------- Net investment income 291,729,074 - ------------------------------------------------------------------------------------------- Net realized loss on investments (Notes 1 and 3) (1,062,480,741) - ------------------------------------------------------------------------------------------- Net realized gain on futures contracts (Note 1) 6,422,887 - ------------------------------------------------------------------------------------------- Net realized gain on written options (Notes 1 and 3) 5,000 - ------------------------------------------------------------------------------------------- Net unrealized depreciation of investments and written options during the year (2,941,714,272) - ------------------------------------------------------------------------------------------- Net loss on investments (3,997,767,126) - ------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations $(3,706,038,052) - ------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements.
STATEMENT OF CHANGES IN NET ASSETS Year ended October 31 ---------------------------------------- 2002 2001 - ------------------------------------------------------------------------------------------------------- Decrease in net assets - ------------------------------------------------------------------------------------------------------- Operations: - ------------------------------------------------------------------------------------------------------- Net investment income $291,729,074 $283,777,893 - ------------------------------------------------------------------------------------------------------- Net realized gain (loss) on investments and foreign currency transactions (1,056,052,854) 498,997,010 - ------------------------------------------------------------------------------------------------------- Net unrealized depreciation of investments (2,941,714,272) (4,676,366,567) - ------------------------------------------------------------------------------------------------------- Net decrease in net assets resulting from operations (3,706,038,052) (3,893,591,664) - ------------------------------------------------------------------------------------------------------- Distributions to shareholders: (Note 1) - ------------------------------------------------------------------------------------------------------- From net investment income Class A (221,847,122) (253,736,384) - ------------------------------------------------------------------------------------------------------- Class B (31,686,180) (50,281,221) - ------------------------------------------------------------------------------------------------------- Class C (863,838) (821,199) - ------------------------------------------------------------------------------------------------------- Class M (2,166,618) (2,880,981) - ------------------------------------------------------------------------------------------------------- Class Y (23,636,250) (23,216,708) - ------------------------------------------------------------------------------------------------------- From net realized long-term gain on investments Class A (334,456,935) (371,622,329) - ------------------------------------------------------------------------------------------------------- Class B (136,486,795) (184,342,826) - ------------------------------------------------------------------------------------------------------- Class C (3,222,523) (2,533,347) - ------------------------------------------------------------------------------------------------------- Class M (5,774,788) (7,006,225) - ------------------------------------------------------------------------------------------------------- Class Y (28,277,539) (28,757,642) - ------------------------------------------------------------------------------------------------------- Decrease from capital share transactions (Note 4) (2,770,082,056) (472,399,630) - ------------------------------------------------------------------------------------------------------- Total decrease in net assets (7,264,538,696) (5,291,190,156) Net assets - ------------------------------------------------------------------------------------------------------- Beginning of year 27,067,203,751 32,358,393,907 - ------------------------------------------------------------------------------------------------------- End of year (including undistributed net investment income of $11,461,971 and $1,134,363, respectively) $19,802,665,055 $27,067,203,751 - ------------------------------------------------------------------------------------------------------- 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 operating performance Year ended October 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.86 $19.81 $21.10 $20.44 $20.87 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .22 .21 .26 .28 .26 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.60) (2.55) .45 2.32 2.15 - ----------------------------------------------------------------------------------------------------- Total from investment operations (2.38) (2.34) .71 2.60 2.41 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.21) (.25) (.26) (.28) (.24) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (.32) (.36) (1.74) (1.66) (2.60) - ----------------------------------------------------------------------------------------------------- Total distributions (.53) (.61) (2.00) (1.94) (2.84) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.95 $16.86 $19.81 $21.10 $20.44 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (14.71) (12.15) 3.92 13.13 12.15 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $14,095,214 $17,731,034 $20,159,272 $22,033,789 $18,814,738 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .86 .82 .81 .79 .84 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.33 1.14 1.38 1.32 1.27 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 29.94 36.90 52.23 50.36 78.75 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS B - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended October 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.62 $19.53 $20.82 $20.19 $20.65 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .09 .07 .12 .12 .11 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.56) (2.52) .44 2.29 2.12 - ----------------------------------------------------------------------------------------------------- Total from investment operations (2.47) (2.45) .56 2.41 2.23 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.08) (.10) (.11) (.12) (.09) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (.32) (.36) (1.74) (1.66) (2.60) - ----------------------------------------------------------------------------------------------------- Total distributions (.40) (.46) (1.85) (1.78) (2.69) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.75 $16.62 $19.53 $20.82 $20.19 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (15.37) (12.80) 3.14 12.28 11.28 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $4,009,396 $7,397,121 $10,163,817 $14,777,660 $15,671,371 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.61 1.57 1.56 1.54 1.59 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .56 .39 .64 .57 .52 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 29.94 36.90 52.23 50.36 78.75 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS C - ---------------------------------------------------------------------------------------- For the period Per-share July 26, 1999+ operating performance Year ended October 31 to October 31 - ---------------------------------------------------------------------------------------- 2002 2001 2000 1999 - ---------------------------------------------------------------------------------------- Net asset value, beginning of period $16.79 $19.75 $21.08 $22.07 - ---------------------------------------------------------------------------------------- Investment operations: - ---------------------------------------------------------------------------------------- Net investment income (a) .09 .07 .11 .02 - ---------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.58) (2.55) .46 (.91) - ---------------------------------------------------------------------------------------- Total from investment operations (2.49) (2.48) .57 (.89) - ---------------------------------------------------------------------------------------- Less distributions: - ---------------------------------------------------------------------------------------- From net investment income (.08) (.12) (.16) (.10) - ---------------------------------------------------------------------------------------- From net realized gain on investments (.32) (.36) (1.74) -- - ---------------------------------------------------------------------------------------- Total distributions (.40) (.48) (1.90) (.10) - ---------------------------------------------------------------------------------------- Net asset value, end of period $13.90 $16.79 $19.75 $21.08 - ---------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (15.30) (12.84) 3.16 (4.03)* - ---------------------------------------------------------------------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $132,854 $168,471 $117,763 $21,555 - ---------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.61 1.57 1.56 .41* - ---------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .57 .38 .57 .12* - ---------------------------------------------------------------------------------------- Portfolio turnover (%) 29.94 36.90 52.23 50.36 - ---------------------------------------------------------------------------------------- + Commencement of operations. * Not annualized. (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS M - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended October 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.75 $19.68 $20.97 $20.33 $20.77 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .13 .12 .16 .17 .16 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.58) (2.54) .45 2.30 2.14 - ----------------------------------------------------------------------------------------------------- Total from investment operations (2.45) (2.42) .61 2.47 2.30 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.12) (.15) (.16) (.17) (.14) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (.32) (.36) (1.74) (1.66) (2.60) - ----------------------------------------------------------------------------------------------------- Total distributions (.44) (.51) (1.90) (1.83) (2.74) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.86 $16.75 $19.68 $20.97 $20.33 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (15.14) (12.58) 3.41 12.55 11.60 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $205,097 $309,868 $387,088 $479,425 $421,616 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) 1.36 1.32 1.31 1.29 1.34 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) .82 .64 .89 .82 .77 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 29.94 36.90 52.23 50.36 78.75 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment and does not reflect the effect of sales charges. (c) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
FINANCIAL HIGHLIGHTS (For a common share outstanding throughout the period) CLASS Y - ----------------------------------------------------------------------------------------------------- Per-share operating performance Year ended October 31 - ----------------------------------------------------------------------------------------------------- 2002 2001 2000 1999 1998 - ----------------------------------------------------------------------------------------------------- Net asset value, beginning of period $16.89 $19.85 $21.14 $20.47 $20.90 - ----------------------------------------------------------------------------------------------------- Investment operations: - ----------------------------------------------------------------------------------------------------- Net investment income (a) .26 .26 .30 .33 .32 - ----------------------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (2.60) (2.56) .46 2.33 2.14 - ----------------------------------------------------------------------------------------------------- Total from investment operations (2.34) (2.30) .76 2.66 2.46 - ----------------------------------------------------------------------------------------------------- Less distributions: - ----------------------------------------------------------------------------------------------------- From net investment income (.25) (.30) (.31) (.33) (.29) - ----------------------------------------------------------------------------------------------------- From net realized gain on investments (.32) (.36) (1.74) (1.66) (2.60) - ----------------------------------------------------------------------------------------------------- Total distributions (.57) (.66) (2.05) (1.99) (2.89) - ----------------------------------------------------------------------------------------------------- Net asset value, end of period $13.98 $16.89 $19.85 $21.14 $20.47 - ----------------------------------------------------------------------------------------------------- Total return at net asset value (%)(b) (14.46) (11.96) 4.18 13.44 12.40 - ----------------------------------------------------------------------------------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------- Net assets, end of period (in thousands) $1,360,104 $1,460,710 $1,530,454 $1,702,442 $840,080 - ----------------------------------------------------------------------------------------------------- Ratio of expenses to average net assets (%)(c) .61 .57 .56 .54 .59 - ----------------------------------------------------------------------------------------------------- Ratio of net investment income to average net assets (%) 1.58 1.39 1.63 1.56 1.52 - ----------------------------------------------------------------------------------------------------- Portfolio turnover (%) 29.94 36.90 52.23 50.36 78.75 - ----------------------------------------------------------------------------------------------------- (a) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding during the period. (b) Total return assumes dividend reinvestment. (c) Includes amounts paid through brokerage service and expense offset arrangements (Note 2). The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS October 31, 2002 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 and class Y shares. Class A shares are sold with a maximum front-end sales charge of 5.75%. Class B shares, which convert to class A shares after approximately eight years, do not pay a front-end sales charge but pay a higher ongoing distribution fee than class A shares, and are subject to a contingent deferred sales charge, if those shares are redeemed within six years of purchase. Class C shares are subject to the same fees and expenses as class B shares, except that class C shares have a one-year 1.00% contingent deferred sales charge and do not convert to class A shares. Class M shares are sold with a maximum front-end sales charge of 3.50% and pay an ongoing distribution fee that is higher than class A shares but lower than class B and class C shares. Class Y shares, which are sold at net asset value, are generally subject to the same expenses as class A, class B, class C and class M shares, but do not bear a distribution fee. Class Y shares are sold to certain eligible purchasers including participants in defined contribution plans (including corporate IRAs), certain college savings plans, bank trust departments and trust companies, and other defined contribution plans subject to minimum requirements. Expenses of the fund are borne pro-rata by the holders of each class of shares, except that each class bears expenses unique to that class (including the distribution fees applicable to such class). Each class votes as a class only with respect to its own distribution plan or other matters on which a class vote is required by law or determined by the Trustees. Shares of each class would receive their pro-rata share of the net assets of the fund, if the fund were liquidated. In addition, the Trustees declare separate dividends on each class of shares. The following is a summary of significant accounting policies consistently followed by the fund in the preparation of its financial statements. The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. A) Security valuation Investments for which market quotations are readily available are stated at market value, which is determined using the last reported sales price on its principal exchange, or if no sales are reported -- as in the case of some securities traded over-the-counter -- the last reported bid price. For foreign investments, if trading or events occurring in other markets after the close of the principal exchange in which the securities are traded are expected to materially affect the value of the investments, then those investments are valued, taking into consideration these events, at their fair value following procedures approved by the Trustees. Securities quoted in foreign currencies are translated into U.S. dollars at the current exchange rate. Short-term investments having remaining maturities of 60 days or less are stated at amortized cost, which approximates market value. Other investments, including restricted securities, are stated at fair value following procedures approved by the Trustees. Market quotations are not considered to be readily available for certain debt obligations; such investments are stated at fair value on the basis of valuations furnished by an independent pricing service or dealers, approved by the Trustees, which determine valuations for normal institutional-size trading units of such securities using methods based on market transactions for comparable securities and variable relationships, generally recognized by institutional traders, between securities. B) Joint trading account The fund may transfer uninvested cash balances, including cash collateral received under security lending arrangements, into a joint trading account along with the cash of other registered investment companies and certain other accounts managed by Putnam Investment Management, LLC ("Putnam Management"), the fund's manager, an indirect wholly-owned subsidiary of Putnam, LLC. These balances may be invested in issuers of high-grade short-term investments having maturities of up to 397 days for collateral received under security lending arrangements and up to 90 days for other cash investments. C) 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 accounted for on the trade date (date the order to buy or sell is executed). Gains or losses on securities sold are determined on the identified cost basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date except that certain dividends from foreign securities are recorded as soon as the fund is informed of the ex-dividend date. Non-cash dividends, if any, are recorded at the fair market value of the securities received. 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 accrued 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. When the contract is closed, the fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Realized gains and losses on purchased options are included in realized gains and losses on investment securities. Futures contracts are valued at the quoted daily settlement prices established by the exchange on which they trade. The fund agrees to receive from or pay to the broker 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. G) Security lending The fund may lend securities, through its agent Citibank N.A., 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 Citibank N.A., 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, 2002, the value of securities loaned amounted to $61,427,340. The fund received cash collateral of $65,986,970 which is pooled with collateral of other Putnam funds into 27 issuers of high-grade short-term investments. H) Line of credit The fund has entered into a committed line of credit with certain banks. This line of credit agreement includes restrictions that the fund maintains an asset coverage ratio of at least 300% and borrowings must not exceed prospectus limitations. For the year ended October 31, 2002, the fund had no borrowings against the line of credit. I) Federal taxes It is the policy of the fund to distribute all of its taxable income within the prescribed time and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. It is also the intention of the fund to distribute an amount sufficient to avoid imposition of any excise tax under Section 4982 of the Internal Revenue Code of 1986, as amended. Therefore, no provision has been made for federal taxes on income, capital gains or unrealized appreciation on securities held nor for excise tax on income and capital gains. At October 31, 2002, the fund had a capital loss carryover of approximately $1,034,093,000 available to the extent allowed by tax law to offer future net capital gain, if any, which will expire on October 31, 2010. J) 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, non-taxable dividends, realized gains and losses on certain futures contracts and market discount. Reclassifications are made to the fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. For the year ended October 31, 2002, the fund reclassified $1,201,458 to decrease undistributed net investment income and $642,745 to increase paid-in-capital, with a decrease to accumulated net realized losses of $558,713. The tax basis components of distributable earnings and the federal tax cost as of period end were as follows: Unrealized appreciation $2,152,783,833 Unrealized depreciation (4,518,798,219) ------------------ Net unrealized depreciation (2,366,014,386) Undistributed income 11,073,654 Post October loss -- Capital loss carryforward (1,034,092,617) Cost for federal income tax purposes $22,275,200,995 Note 2 Management fee, administrative services and other transactions Compensation of Putnam Management, for management and investment advisory services is paid quarterly based on the average net assets of the fund. Such fee is based on the following annual rates: 0.65% of the first $500 million of average net assets, 0.55% of the next $500 million, 0.50% of the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion, 0.38% of the next $5 billion, 0.37% of the next $5 billion, 0.36% of the next $5 billion, 0.35% of the next $5 billion, 0.34% of the next $5 billion, 0.33% of the next $8.5 billion and 0.32% thereafter. The fund reimburses Putnam Management an allocated amount for the compensation and related expenses of certain officers of the fund and their staff who provide administrative services to the fund. The aggregate amount of all such reimbursements is determined annually by the Trustees. Custodial functions for the fund's assets are provided by Putnam Fiduciary Trust Company (PFTC), a wholly-owned subsidiary of Putnam, LLC. Investor servicing agent functions are provided by Putnam Investor Services, a division of PFTC. Under the subcustodian contract between the subcustodian bank and PFTC, the subcustodian bank has a lien on the securities of the fund to the extent permitted by the fund's investment restrictions to cover any advances made by the subcustodian bank for the settlement of securities purchased by the fund. At October 31, 2002, the payable to the subcustodian bank represents the amount due for cash advanced for the settlement of a security purchased. 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, 2002, the fund's expenses were reduced by $1,983,324 under these arrangements. Each independent Trustee of the fund receives an annual Trustee fee, of which $9,714 has been allocated to the fund, and an additional fee for each Trustees meeting attended. Trustees receive additional fees for attendance at certain committee meetings. The fund has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which allows the Trustees to defer the receipt of all or a portion of Trustees Fees payable on or after July 1, 1995. The deferred fees remain invested in certain Putnam funds until distribution in accordance with the Deferral Plan. The fund has adopted an unfunded noncontributory defined benefit pension plan (the "Pension Plan") covering all Trustees of the fund who have served as a Trustee for at least five years. Benefits under the Pension Plan are equal to 50% of the Trustee's average total retainer and meeting fees for the three years preceding retirement. Pension expense for the fund is included in Compensation of Trustees in the Statement of operations. Accrued pension liability is included in Payable for compensation of Trustees in the Statement of assets and liabilities. The fund has adopted distribution plans (the "Plans") with respect to its class A, class B, class C and class M shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. The purpose of the Plans is to compensate Putnam Retail Management, a wholly-owned subsidiary of Putnam, LLC and Putnam Retail Management GP, Inc., for services provided and expenses incurred by it in distributing shares of the fund. The Plans provide for payments by the fund to Putnam Retail Management at an annual rate up to 0.35%, 1.00%, 1.00% and 1.00% of the average net assets attributable to class A, class B, class C and class M shares, respectively. The Trustees have approved payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of the average net assets attributable to class A, class B, class C and class M shares, respectively. For the year ended October 31, 2002, Putnam Retail Management, acting as underwriter received net commissions of $2,431,606 and $25,728 from the sale of class A and class M shares, respectively, and received $12,204,538 and $48,445 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, 2002, Putnam Retail Management, acting as underwriter received $55,321 and no monies on class A and class M redemptions, respectively. Note 3 Purchases and sales of securities During the year ended October 31, 2002, cost of purchases and proceeds from sales of investment securities other than short-term investments aggregated $7,562,166,126 and $10,493,050,969, respectively. There were no purchases and sales of U.S. government obligations. Written option transactions during the year are summarized as follows: Contract Premiums Amounts Received - --------------------------------------------------------------------------- Written options outstanding at beginning of year -- $-- - --------------------------------------------------------------------------- Options opened 3,146,989 1,730,844 - --------------------------------------------------------------------------- Options expired -- -- - --------------------------------------------------------------------------- Options closed (100,000) (55,000) - --------------------------------------------------------------------------- Written options outstanding at end of year 3,046,989 $1,675,844 - --------------------------------------------------------------------------- Note 4 Capital shares At October 31, 2002, there was an unlimited number of shares of beneficial interest authorized. Transactions in capital shares were as follows: Year ended October 31, 2002 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 209,314,339 $3,443,291,537 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 29,773,046 514,436,954 - --------------------------------------------------------------------------- 239,087,385 3,957,728,491 Shares repurchased (280,530,851) (4,437,942,938) - --------------------------------------------------------------------------- Net decrease (41,443,466) $(480,214,447) - --------------------------------------------------------------------------- Year ended October 31, 2001 - --------------------------------------------------------------------------- Class A Shares Amount - --------------------------------------------------------------------------- Shares sold 189,365,926 $3,565,384,680 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 30,257,656 578,317,065 - --------------------------------------------------------------------------- 219,623,582 4,143,701,745 Shares repurchased (185,439,872) (3,477,293,004) - --------------------------------------------------------------------------- Net increase 34,183,710 $666,408,741 - --------------------------------------------------------------------------- Year ended October 31, 2002 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 36,128,980 $592,256,879 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 8,997,908 155,961,734 - --------------------------------------------------------------------------- 45,126,888 748,218,613 Shares repurchased (198,687,318) (3,171,409,372) - --------------------------------------------------------------------------- Net decrease (153,560,430) $(2,423,190,759) - --------------------------------------------------------------------------- Year ended October 31, 2001 - --------------------------------------------------------------------------- Class B Shares Amount - --------------------------------------------------------------------------- Shares sold 58,846,110 $1,096,819,633 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 11,554,197 217,852,632 - --------------------------------------------------------------------------- 70,400,307 1,314,672,265 Shares repurchased (145,630,925) (2,681,501,969) - --------------------------------------------------------------------------- Net decrease (75,230,618) $(1,366,829,704) - --------------------------------------------------------------------------- Year ended October 31, 2002 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 4,043,786 $66,395,924 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 215,464 3,760,986 - --------------------------------------------------------------------------- 4,259,250 70,156,910 Shares repurchased (4,730,574) (74,985,768) - --------------------------------------------------------------------------- Net decrease (471,324) $(4,828,858) - --------------------------------------------------------------------------- Year ended October 31, 2001 - --------------------------------------------------------------------------- Class C Shares Amount - --------------------------------------------------------------------------- Shares sold 5,855,535 $110,378,503 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 165,876 3,160,000 - --------------------------------------------------------------------------- 6,021,411 113,538,503 Shares repurchased (1,951,860) (35,923,012) - --------------------------------------------------------------------------- Net increase 4,069,551 $77,615,491 - --------------------------------------------------------------------------- Year ended October 31, 2002 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 2,725,764 $45,030,306 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 442,469 7,675,525 - --------------------------------------------------------------------------- 3,168,233 52,705,831 Shares repurchased (6,873,131) (110,359,549) - --------------------------------------------------------------------------- Net decrease (3,704,898) $(57,653,718) - --------------------------------------------------------------------------- Year ended October 31, 2001 - --------------------------------------------------------------------------- Class M Shares Amount - --------------------------------------------------------------------------- Shares sold 3,346,688 $62,763,750 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 503,750 9,569,569 - --------------------------------------------------------------------------- 3,850,438 72,333,319 Shares repurchased (5,012,747) (93,387,504) - --------------------------------------------------------------------------- Net decrease (1,162,309) $(21,054,185) - --------------------------------------------------------------------------- Year ended October 31, 2002 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 39,751,536 $652,604,710 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 3,017,173 51,913,789 - --------------------------------------------------------------------------- 42,768,709 704,518,499 Shares repurchased (31,947,187) (508,712,773) - --------------------------------------------------------------------------- Net increase 10,821,522 $195,805,726 - --------------------------------------------------------------------------- Year ended October 31, 2001 - --------------------------------------------------------------------------- Class Y Shares Amount - --------------------------------------------------------------------------- Shares sold 35,398,439 $666,208,728 - --------------------------------------------------------------------------- Shares issued in connection with reinvestment of distributions 2,716,189 51,974,350 - --------------------------------------------------------------------------- 38,114,628 718,183,078 Shares repurchased (28,754,910) (546,723,051) - --------------------------------------------------------------------------- Net increase 9,359,718 $171,460,027 - --------------------------------------------------------------------------- Note 5 New accounting pronouncement As required, the fund has adopted the provisions of the AICPA Audit and Accounting Guide, Audits of Investment Companies. This Guide requires that the fund amortize premium and accrete discount on all fixed-income securities, and classify as interest income gains and losses realized on pay-downs on mortgage-backed securities. Prior to November 1, 2001, the fund did not amortize premium and accrete discount for certain fixed-income securities and characterized as realized gains and losses pay-downs on mortgage-backed securities. Adopting these accounting principles did not affect the fund's net asset value, but did change the classification of certain amounts between interest income and realized and unrealized gain/loss in the Statement of operations. The adoption of this principle was not material to the financial statements. 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. The Form 1099 you receive in January 2003 will show the tax status of all distributions paid to your account in calendar 2002.
TRUSTEES Name, Address, 1 Date of Birth, Position(s) Held with Fund and Length of Service Principal Occupation(s) as a Putnam Fund Trustee 2 During Past 5 Years Other Directorships Held by Trustee - ------------------------------------------------------------------------------------------------------- Jameson A. Baxter (9/6/43), President, Baxter Director of ASHTA Chemicals, Inc., Trustee since 1994 Associates, Inc. Banta Corporation (a printing and (a management digital imaging firm), Intermatic consulting and private Corporation (manufacturer of energy investments firm) control products), Ryerson Tull, Inc. (a steel service corporation), Advocate Health Care, and the National Center for Nonprofit Boards. Chairman Emeritus of the Board of Trustees, Mount Holyoke College. Also held various positions in investment banking and corporate finance, including Vice President and principal of the Regency Group and consultant to First Boston Corp. Charles B. Curtis (4/27/40), President and Chief Member of the Council on Foreign Trustee since 2001 Operating Officer, Relations, the Electric Power Nuclear Threat Research Institute Advisory Council, Initiative (a private the Board of Directors of the Gas foundation dedicated Technology Institute, the University to reducing the threat of Chicago Board of Governors for of weapons of mass Argonne National Laboratory, the destruction), also serves Board of Directors of the as Senior Advisor to the Environment and Natural Resources United Nations Program Steering Committee, Foundation John F. Kennedy School of Government, Harvard University. Prior to 2002, Mr. Curtis was a member of the Board of Directors of the Gas Technology Institute. Until 2001, Mr. Curtis was a Member of the Department of Defense's Policy Board and Director of EG&G Technical Services, Inc. (fossil energy research and development support) and prior to May 1997, Mr. Curtis was Deputy Secretary of Energy. John A. Hill (1/31/42), Vice-Chairman and Director of Devon Energy Trustee since 1985 and Managing Director, Corporation (formerly known as Chairman since 2000 First Reserve Snyder Oil Corporation), Corporation TransMontaigne Oil Company, (a registered investment Continuum Health Partners of advisor investing in New York, Sarah Lawrence College, companies in the and various private companies owned world-wide energy by First Reserve Corporation. industry on behalf of Trustee of TH Lee, Putnam institutional investors) Investment Trust (a closed-end investment company). Prior to acquiring First Reserve in 1983, Mr. Hill held executive positions with several advisory firms and various positions with the federal government, including Associate Director of the Office of Manage ment and Budget and Deputy Director of the Federal Energy Administration. Ronald J. Jackson Private investor Former Chairman, President, and (12/17/43), Chief Executive Officer of Fisher- Trustee since 1996 Price, Inc. (a toy manufacturer). Previously served as President and Chief Executive Officer of Stride- Rite, Inc. and Kenner Parker Toys. Also held financial and marketing positions with General Mills, Parker Brothers, and Talbots. President of the Kathleen and Ronald J. Jackson Foundation (charitable trust). Member of the Board of Overseers of WGBH (public television and radio). Member of the Board of Overseers of the Peabody Essex Museum. Paul L. Joskow (6/30/47), Elizabeth and James Director, National Grid Group Trustee since 1997 Killian Professor of (a UK-based holding company Economics and with interests in electric power, Management and natural gas distribution, and Director of the Center telecommunications networks), and for Energy and the Whitehead Institute for Environmental Policy Biomedical Research (a non-profit Research, Massachusetts research institution). President of the Institute of Technology Yale University Council. Prior to February 2002, March 2000, and September 1998, Dr. Joskow was a Director of State Farm Indemnity Company (an automobile insurance company), Director of New England Electric System (a public utility holding company) and a consultant to National Economic Research Associates, respectively. Elizabeth T. Kennan Chairman, Cambus- Director, Northeast Utilities, and (2/25/38), Kenneth Bloodstock (a Talbots (a distributor of women's Trustee since 1992 limited liability company apparel). Trustee of Centre College. involved in thoroughbred Prior to 2001, Dr. Kennan was a horse breeding and member of the Oversight Committee farming), President of Folger Shakespeare Library. Emeritus of Mount Prior to September 2000, June 2000, Holyoke College and November 1999, Dr. Kennan was a Director of Chastain Real Estate, Bell Atlantic, and Kentucky Home Life Insurance, respectively. Prior to 1995, Dr. Kennan was a Trustee of Notre Dame University. For 12 years, she was on the faculty of Catholic University. John H. Mullin, III Chairman and CEO Director Alex. Brown Realty, Inc., (6/15/41), of Ridgeway Farm Sonoco Products, Inc. (a packaging Trustee since 1997 (a limited liability company), The Liberty Corporation company engaged in (a company engaged in the timber and farming) broadcasting industry), and Progress Energy, Inc. (a utility company, formerly known as Carolina Power & Light). Trustee Emeritus of Washington & Lee University. Prior to October 1997, January 1998, and May 2001, Mr. Mullin was a Director of Dillon, Read and Co. Inc., The Ryland Group, Inc., and Graphic Packaging International Corp., respectively. Robert E. Patterson Senior Partner of Cabot Chairman of the Joslin Diabetes (3/15/45), Properties, LLP and Center, Trustee of SEA Education Trustee since 1984 Chairman of Cabot Association, and Director of Properties, Inc. Brandywine Trust Company (a trust company). Prior to February 1998, Mr. Patterson was Executive Vice President and Director of Acquisitions of Cabot Partners Limited Partnership. Prior to December 2001, Mr. Patterson was President and Trustee of Cabot Industrial Trust (publicly traded real estate investment trust). Prior to 1990, Mr. Patterson was Executive Vice President of Cabot, Cabot & Forbes Realty Advisors, the predecessor of Cabot Partners, and prior to that was Senior Vice President of the Beal Companies. W. Thomas Stephens Corporate Director Director of Qwest Communications (9/2/42), (communications company), Xcel Trustee since 1997 Energy Incorporated (public utility company), TransCanada Pipelines, Norske Canada, Inc. (paper manufacturer) and Mail-Well (printing and envelope company). Prior to July 2001 and October 1999, Mr. Stephens was Chairman of Mail- Well and MacMillan-Bloedel (forest products company). Prior to 1996, Mr. Stephens was Chairman and Chief Executive Officer of Johns Manville. W. Nicholas Thorndike Director of various Trustee of Northeastern University and (3/28/33), corporations and Honorary Trustee of Massachusetts Trustee since 1992 charitable General Hospital. Prior to organizations, September 2000, April 2000, and including Courier December 2001, Mr. Thorndike was Corporation (a book a Director of Bradley Real Estate, manufacturer) and Inc., a Trustee of Eastern Utilities Providence Journal Co. Associates, and a Trustee of Cabot (a newspaper publisher) Industrial Trust, respectively. Previously served as Chairman of the Board and managing partner of Wellington Management/Thorndike Doran Paine & Lewis, and Chairman and Director of Ivest Fund. Lawrence J. Lasser* President and Chief Director of Marsh & McLennan (11/1/42), Executive Officer of Companies, Inc. and the United Way Trustee since 1992 Putnam Investments of Massachusetts Bay. Member of the Vice President since 1981 and Putnam Board of Governors of the Investment Management Company Institute, Trustee of the Museum of Fine Arts, Boston, a Trustee and Member of the Finance and Executive Committees of Beth Israel Deaconess Medical Center, Boston, and a Member of the CareGroup Board of Managers Investment Committee, the Council on Foreign Relations, and the Commercial Club of Boston. George Putnam, III* President, New Director of The Boston Family (8/10/51), Generation Research, Office, L.L.C. (registered investment Trustee since 1984 and Inc. (a publisher of advisor), Trustee of the SEA President since 2000 financial advisory and Education Association, Trustee of other research services St. Mark's School, and Trustee of relating to bankrupt and Shore Country Day School. distressed companies) Previously, Mr. Putnam was an and New Generation attorney with the firm of Dechert Advisers, Inc. Price & Rhoads. (a registered investment adviser) A.J.C. Smith* (4/13/34), Director of Marsh & Director of Trident Corp. (a limited Trustee since 1986 McLennan partnership with over 30 institutional Companies, Inc. investors). Trustee of the Carnegie Hall Society, the Educational Broadcasting Corporation and the National Museums of Scotland. Chairman of the Central Park Conservancy. Member of the Board of Overseers of the Joan and Sanford I. Weill Graduate School of Medical Sciences of Cornell University. Fellow of the Faculty of Actuaries in Edinburgh, the Canadian Institute of Actuaries, and the Conference of Actuaries. Associate of the Society of Actuaries. Member of the American Actuaries, the International Actuarial Association and the International Association of Consulting Actuaries. Prior to May 2000 and November 1999, Mr. Smith was Chairman and CEO, respectively, of Marsh & McLennan Companies, Inc. - ------------------------------------------------------------------------------------------------------- 1 The address of each Trustee is One Post Office Square, Boston, MA 02109. As of October 31, 2002, there were 101 Putnam Funds. 2 Each Trustee serves for an indefinite term, until his or her resignation, 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. Putnam, III, Lasser and Smith are deemed "interested persons" by virtue of their positions as officers or shareholders of the fund or Putnam Management, Putnam Retail Management or Marsh & McLennan Companies, Inc. George Putnam, III is the President of your fund and each of the other Putnam funds. Lawrence J. Lasser is the President and Chief Executive Officer of Putnam Investments and Putnam Management. Mr. Lasser and Mr. Smith serve as Directors of Marsh & McLennan Companies, Inc.
OFFICERS In addition to George Putnam III and Lawrence J. Lasser, the other officers of the fund are shown below: Name, Address, 1 Date of Birth, Length of Service with Position(s) Held with Fund the Putnam Funds Principal Occupation(s) During Past 5 Years - --------------------------------------------------------------------------------------------------------------- Charles E. Porter Since 1989 Managing Director, Putnam Investments (7/26/38), Executive Vice and Putnam Management President, Treasurer and Principal Financial Officer Patricia C. Flaherty Since 1993 Senior Vice President, Putnam Investments (12/1/46), Senior Vice and Putnam Management President Karnig H. Durgarian (1/13/56), Vice President and Since 2002 Senior Managing Director, Putnam Principal Executive Officer Investments Michael T. Healy (1/24/58), Assistant Treasurer Since 2000 Managing Director, Putnam Investments and Principal Accounting Officer Steven D. Krichmar (6/27/58), Vice President and Since 2002 Managing Director, Putnam Investments. Principal Financial Officer Prior to 2001, Partner, PricewaterhouseCoopers LLP Charles E. Haldeman Jr. Since 2002 Senior Managing Director, Putnam (10/29/48), Vice President Investments and Putnam Management. Prior to 2002, Chief Executive Officer, Delaware Management Holdings, Inc.; prior to 2000, President and Chief Operating Officer, United Asset Management Stephen M. Oristaglio Since 1998 Senior Managing Director, Putnam (8/21/55), Vice President Investments and Putnam Management. Prior to 1998, Managing Director, Swiss Bank Corp. Gordon H. Silver Since 1990 Senior Managing Director, Putnam (7/3/47), Vice President Investments, Putnam Management and Putnam Retail Management Brett C. Browchuk Since 1994 Managing Director, Putnam Investments (2/27/63), Vice President and Putnam Management Richard G. Leibovitch Since 1999 Managing Director, Putnam Investments (10/31/63), Vice President and Putnam Management. Prior to 1999, Managing Director, J.P. Morgan Richard A. Monaghan Since 1998 Senior Managing Director, Putnam (8/25/54), Vice President Investments and Putnam Retail Management Beth S. Mazor Since 2002 Senior Vice President, Putnam Investments (4/6/58), Vice President John R. Verani Since 1988 Senior Vice President, Putnam Investments (6/11/39), Vice President and Putnam Management Judith Cohen (6/7/45), Clerk and Since 1993 Clerk and Assistant Treasurer, The Assistant Treasurer Putnam Funds Deborah F. Kuenstner Since 2000 Managing Director of Putnam Management (7/9/58), Vice President - --------------------------------------------------------------------------------------------------------------- 1 The address of each Officer is One Post Office Square, Boston, MA 02109.
FUND INFORMATION ABOUT PUTNAM INVESTMENTS One of the largest mutual fund families in the United States, Putnam Investments has a heritage of investment leadership dating back to Judge Samuel Putnam, whose Prudent Man Rule has defined fiduciary tradition and practice since 1830. Founded over 65 years ago, Putnam Investments was built around the concept that a balance between risk and reward is the hallmark of a well-rounded financial program. We presently manage over 100 mutual funds in growth, value, blend, fixed income, and international. INVESTMENT MANAGER Putnam Investment Management, LLC One Post Office Square Boston, MA 02109 MARKETING SERVICES Putnam Retail Management One Post Office Square Boston, MA 02109 CUSTODIAN Putnam Fiduciary Trust Company LEGAL COUNSEL Ropes & Gray INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP TRUSTEES John A. Hill, Chairman Jameson Adkins Baxter Charles B. Curtis Ronald J. Jackson Paul L. Joskow Elizabeth T. Kennan Lawrence J. Lasser John H. Mullin III Robert E. Patterson George Putnam, III A.J.C. Smith W. Thomas Stephens W. Nicholas Thorndike OFFICERS George Putnam, III President Charles E. Porter Executive Vice President, Treasurer and Principal Financial Officer Patricia C. Flaherty Senior Vice President Karnig H. Durgarian Vice President and Principal Executive Officer Michael T. Healy Assistant Treasurer and Principal Accounting Officer Steven D. Krichmar Vice President and Principal Financial Officer Lawrence J. Lasser Vice President Charles E. Haldeman, Jr. Vice President Stephen M. Oristaglio Vice President Gordon H. Silver Vice President Brett C. Browchuk Vice President Deborah F. Kuenstner Vice President Richard G. Leibovitch Vice President Richard A. Monaghan Vice President Beth S. Mazor Vice President John R. Verani Vice President 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, which gives details of sales charges, investment objectives, and operating policies of the fund, and the most recent copy of Putnam's Quarterly Performance Summary and Putnam's Quarterly Ranking Summary. For more information or to request a prospectus, call toll free: 1-800-225-1581. The fund's Statement of Additional Information contains additional information about the fund's Trustees and is available without charge upon request by calling 1-800-225-1581. Visit www.putnaminvestments.com or call a representative at 1-800-225-1581. NOT FDIC INSURED, MAY LOSE VALUE, NO BANK GUARANTEE [LOGO OMITTED] PUTNAM INVESTMENTS The Putnam Funds One Post Office Square Boston, Massachusetts 02109 - --------------------- PRSRT STD U.S. POSTAGE PAID PUTNAM INVESTMENTS - --------------------- For account balances, economic forecasts, and the latest on Putnam funds, visit www.putnaminvestments.com AN022-84073 002/881/427/511 12/02 PUTNAM INVESTMENTS [SCALE LOGO OMITTED] - ---------------------------------------------------------------------------- Putnam Fund for Growth and Income Supplement to Annual Report dated 10/31/02 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 incur neither a front-end load, distribution fee, nor contingent deferred sales charge, will differ from performance of class A, B, C, and M shares, which are discussed more extensively in the annual report. ANNUAL RESULTS AT A GLANCE - ---------------------------------------------------------------------------- Total return for periods ended 10/31/02 NAV 1 year -14.46% 5 years 0.03 Annual average 0.01 10 years 134.48 Annual average 8.90 Life of fund (since class A inception, 11/6/57) Annual average 12.22 Share value: NAV 10/31/01 $16.89 10/31/02 $13.98 - ---------------------------------------------------------------------------- Distributions: No. Income Capital gains Total 4 $0.2523 $0.3187 $0.5710 - ---------------------------------------------------------------------------- Please note that past performance is not indicative of future results. More recent returns may be more or less than those shown. Returns shown for class Y shares for periods prior to their inception are derived from the historical performance of class A shares, and are not adjusted to reflect the initial sales charge currently applicable to class A shares. These returns have not been adjusted to reflect differences in operating expenses which, for class Y shares, typically are lower than the operating expenses applicable to class A shares. All returns assume reinvestment of distributions at net asset value. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. See full report for information on comparative benchmarks. If you have questions, please consult your fund prospectus or call Putnam toll free at 1-800-752-9894. -----END PRIVACY-ENHANCED MESSAGE-----