THE PUTNAM
FUND FOR
GROWTH AND
INCOME
[GRAPHIC OMITTED:ARTWORK]
ANNUAL REPORT
October 31, 1995
[LOGO: BOSTON * LONDON * TOKYO]
PERFORMANCE HIGHLIGHTS
* Morningstar, Inc. once again awarded The Putnam Fund for
Growth and Income four out of a possible five stars for the
overall risk-adjusted performance of its class A shares as
of October 31, 1995. The four-star rating puts the fund's
class A shares in the top 32.5% among the 1,300 equity funds
rated.*
* Total return for the fund's class A shares has
consistently surpassed that of the average growth and income
fund tracked by Lipper Analytical Services, based on results
for the 1-, 5-, and 10-year periods ended October 31, 1995.
For 1 year, the fund's total return for class A shares was
23.00% versus 20.23% for the Lipper category average; for 5
years, 16.17% versus 16.14%; and for 10 years, 14.86% versus
13.17%.+
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
13 Portfolio holdings
19 Financial statements
* Morningstar is an independent research firm that rates a
fund in relation to other funds with similar investment
objectives, based on the fund's class A shares 1-, 5-, and
10-year average annual returns, adjusted for risk factors
and sales charges. For each of these periods ended 10/31/95,
there were 1,300, 931, and 487 funds in the equity category,
and the fund's class A shares received 3, 3, and 4 stars,
respectively. Ratings are subject to change monthly.
+Lipper Analytical Services is an independent research
organization; rankings are based on total return
performance, vary over time, and do not reflect the effects
of sales charges. The fund's class A and class B shares
ranked 105 and 139, respectively, out of 408 growth and
income funds for 1-year performance, through 10/31/95. Class
A shares ranked 88 out of 187 and 21 out of 117 funds for 5-
and 10-year performance, respectively, through 10/31/95.
Class B shares were not ranked for the 5- and 10-year
periods. Class M shares, added to the fund on 5/1/95, were
not ranked.
Past performance is not indicative of future results.
FROM THE CHAIRMAN
[GRAPHIC OMITED:
photo of
George Putnam]
(C) Karsh, Ottawa
Dear Shareholder:
What began as a journey through an uncertain market
environment ended in yet another successful run for The
Putnam Fund for Growth and Income during the fiscal year
that closed on October 31, 1995. In the year's first half,
Fund Managers Anthony Kreisel and David King focused on
interest-rate-sensitive securities, a move that proved
prescient as the bond market rallied.
By the fiscal year's midpoint at the end of April, many of
the uncertainties had been resolved, exposing gathering
strength in the stock market as well. At that point, Tony
and Dave took profits in some of the bonds and shifted
assets into finance and utility stocks. These sectors then
helped lead the equity market's march to new highs.
The result: Another year of solid performance that
demonstrates why the fund is a perennial favorite with
investors seeking long-term growth and income. Tony and Dave
provide greater detail in the report that follows.
Respectfully yours,
/s/George Putnam
-------------
George Putnam
Chairman of the Trustees
December 20, 1995
REPORT FROM THE FUND MANAGERS
ANTHONY I. KREISEL
DAVID L. KING
Strategic investment decisions made early in fiscal 1995
steadily came to fruition, resulting in impressive total
returns for The Putnam Fund for Growth and Income over the
12 months ended October 31, 1995. The period began with an
unsettled stock market and rising interest rates. It ended
with a slowdown of the U.S. economy and with strengthened
U.S. equity and fixed-income markets. For the 12 months
ended October 31, 1995, the fund's total return was quite
competitive in this market environment: 23.00% for class A
shares and 21.91% for class B shares, both at net asset
value. This placed the fund's class A shares in the top
third of the Lipper universe, where the average return was
20.23%.
* INITIAL FOCUS ON INTEREST-RATE-SENSITIVE SECURITIES PROVED
PROFITABLE
During the first half of fiscal 1995, an emphasis on
interest-rate-sensitive securities was a pivotal part of the
fund's strategy. This early focus was a key factor in the
fund's positive performance later in the year. In November
1994, we believed that a bond-market recovery was near and
that interest rates had peaked. We also held the opinion
that long-term government bonds, which were then yielding
around 8%, offered potential returns that were very
competitive with long-term returns from many stocks, with
much less risk. Therefore, over the next few months, we
allocated more than 8% of the fund's portfolio to
intermediate- and long-term government bonds.
By early December 1994, nearly 40% of the portfolio
consisted of interest-rate-sensitive securities, including
these government bonds as well as those of banks, insurance
companies, and utilities. This portfolio allocation proved
extremely beneficial for your fund as fixed-income markets
rallied and interest-rate-sensitive stocks rebounded over
the next few months.
In the bond market, however, this window of opportunity
closed relatively quickly. By April 30, 1995, the fund's
semiannual point, long-term bond yields had fallen to 6.5%.
At this level, Treasury bonds were no longer competitive
with the total return potential of equities, and we
eliminated the U.S. Treasury position. However, the previous
sharp run-up in the government bond market allowed us to
take substantial profits on the fund's U.S. Treasury
holdings in the process. We redeployed these assets into
financial and utility sector stocks. These stocks, with
their depressed prices, offered significant value and,
therefore, we increased their focus in the portfolio going
into the second half of the fiscal year. The fund's
financial services holdings performed especially well
throughout the period.
* LONG-TERM GLOBAL OPPORTUNITIES KEEP FUND ON A SUCCESSFUL
COURSE
As long-term investors, we continue to seek value stocks
based on our assessment of a company's long-term earnings
power. We look for U.S. companies that we believe have
successfully dealt with internal issues such as cost
cutting, product improvements, changing technologies, or
restructurings and now are highly competitive with
businesses in other parts of the world. Some of these
companies are already dominating global markets while others
are on the verge of new expansion into foreign operations.
Here are some of the fund's key holdings during the annual
period -- all are U.S. companies whose businesses extend
beyond our shores.
Philip Morris Companies, Inc. continues the rapid increase
in its market share abroad. The majority of its earnings now
come from food and nondomestic tobacco sales. As the value
of its shares rose approximately 60% since the start of
1995, Philip Morris remained the fund's largest holding.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS*
showing:
Insurance and finance 16.6%
Utilities 13.2%
Oil and gas 11.7%
Consumer nondurables 7.7%
Pharmaceuticals 6.2%
Footnote reads:
(bullet)Based on net assets as of 10/31/95. Holdings will
vary over time.
Avon Products, Inc.'s stock continues to meet our criteria
for value, combined with increased earnings levels and
strong growth potential in the years ahead. We believe Avon
is especially well positioned to benefit from emerging
markets in Asia, eastern Europe, and Latin America. Most of
Avon's profits now come from international sales.
Eastman Kodak Company has implemented a dramatic
restructuring over the last three years and improved its
cost control. The world's largest manufacturer of
photographic-related products, Kodak has had its stock among
the fund's largest holdings and top performers for several
years.
TRW, Inc. is a conglomerate that provides products for
defense, space, and automotive markets globally. In early
1995, the company experienced increases in sales and
earnings as a result of growth in its worldwide automotive
business. As TRW's productivity and operating margins
continued to improve, we kept it at a sizable position in
the portfolio during the fiscal year.
Eli Lilly & Co. and Baxter International, Inc., in the
pharmaceuticals and health-care sectors respectively, were
among the best-performing holdings in the fund's portfolio.
The price of the fund's Lilly position increased from about
$60 per share to $90 per share over the annual period.
Consequently, we took sizable profits on our holdings of
this successful pharmaceutical company toward the end of the
fiscal year. Baxter International, the world's largest
manufacturer of disposable medical supplies, has been
another success story. Baxter has reduced its costs and
measurably increased its cash flow in the past year.
Union Carbide Corp., in the chemicals sector, and Chrysler
Corp., in the automotive sector, have both made inward
improvements and are now looking outward to expand into
foreign markets. Union Carbide, which withdrew from Europe
in the 1970s, is now involved in a joint venture in Italy
and in a project in the Middle East utilizing the company's
improved technologies and cost competitiveness. Chrysler,
essentially a North American company, is currently seeking
to increase its foreign auto sales by 20% annually over the
next five years.
TOP 10 HOLDINGS (10/31/95)*
PHILIP MORRIS COMPANIES, INC.
Tobacco products, food, brewing
EASTMAN KODAK COMPANY
Photographic equipment
KIMBERLY-CLARK CORPORATION
Consumer nondurables
J. P. MORGAN & COMPANY, INC.
Multinational banking and finance
AVON PRODUCTS, INC.
Cosmetics, toiletries, fashion jewelry, fragrances
UPJOHN COMPANY
Phamaceuticals
TRW, INC.
Products for space, defense, and automotive markets
BAXTER INTERNATIONAL, INC.
Medical devices and technology
WARNER-LAMBERT COMPANY
Pharmaceuticals
FLEET FINANCIAL GROUP, INC.
Insurance and finance
Footnote reads:
*These holdings represent 19.40% of the fund's net assets.
Portfolio holdings will vary over time.
Chrysler's minivan product is attractive to foreign
consumers and their medium-size car technology is
particularly suited to providing larger vehicles for
Europe's and Japan's narrow roads. Both companies' earnings
potential over the next few years is substantial.
* PREPARING FOR THE NEXT ECONOMIC PHASE
In our view, the current economic slowdown is likely to
continue with the possibility that the nation may enter the
early stages of recession in fiscal 1996. Accordingly, we
have begun to purchase early cycle consumer stocks and plan
to increase holdings in the retail, industrial, automotive,
and building and construction sectors. We believe stocks in
these areas, while they have underperformed in the past two
years, now offer solid value relative to price. More
importantly, they have historically performed well during
periods of economic recession, when the Federal Reserve
typically lowers interest rates.
We believe many of the large retail and automotive companies
are in much stronger financial condition now than they were
a few years ago following cost cutting, debt reduction, and
renewed focus on their core businesses as opposed to
diversified operations. In the last few months of fiscal
1995, which we considered a transition period in the U.S.
economy, we retained our level of commitment to utilities
and consumer nondurable sector stocks while anticipating a
shift of these assets into consumer cyclical stocks,
preparing for the next phase of the market.
* OUTLOOK: A STRATEGY THAT SEEKS VALUE REMAINS EFFECTIVE
As your fund moves into fiscal 1996, we believe there will
be further slowing in U.S. economic growth. Consequently,
our strategy is to position your fund steadily for a
possible soft landing or mild recession sometime in the
coming fiscal year. Our emphasis on investing for long-term
growth potential and seeking out undervalued companies that
perform well through market ups and downs should continue to
serve your fund effectively in the coming year.
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
10/31/95, there is no guarantee the fund will continue to
hold these securities in the future.
PERFORMANCE SUMMARY
This section provides, at a glance, information about your
fund's performance. 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.
Performance should always be considered in light of a fund's
investment strategy. The Putnam Fund for Growth and Income
is designed for investors seeking capital growth and current
income.total return for periods ENDED 10/31/95
<TABLE>
<CAPTION>
Class A Class B Class M
- -----------------------------------------------------------------------------------------------------------
(11/16/57)* (4/27/92)* (5/1/95)*
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 23.00% 15.96% 21.91% 16.91% -- --
- -----------------------------------------------------------------------------------------------------------
5 years 111.58 99.47 -- -- -- --
Annual average 16.17 14.81 -- -- -- --
- -----------------------------------------------------------------------------------------------------------
10 years 299.54 276.45 -- -- -- --
Annual average 14.86 14.17 -- -- -- --
- -----------------------------------------------------------------------------------------------------------
Life-of-class -- -- 51.65 48.65 11.88% 7.94%
Annual average -- -- 12.60 11.96 -- --
- -----------------------------------------------------------------------------------------------------------
*Commencement of operations
</TABLE>
Comparative INDEX returns for periods ended 10/31/95
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------
1 year 26.36% 2.81%
- ------------------------------------------------------------
5 years 121.28 15.13
Annual average 17.22 2.86
- ------------------------------------------------------------
10 years 320.19 41.40
Annual average 15.44 3.52
- ------------------------------------------------------------
Life of class B 56.98 10.18
Annual average 13.71 2.80
- ------------------------------------------------------------
Life of class M 14.50 1.19
- ------------------------------------------------------------
Performance data represent past results and do not reflect
future performance, and will differ for each share class.
They do not take into account any adjustment for taxes
payable on reinvested distributions or, for class A shares,
distribution fees prior to implementation of the class
distribution plan in 1990. Investment returns and net asset
value will fluctuate so that an investor's shares when sold
may be worth more or less than their original cost.
POP assumes 5.75% maximum sales charge for class A shares
and 3.50% for class M shares, which became effective 5/1/95.
CDSC for class B shares declines from a 5% maximum
contingent deferred sales charge during the first year to a
1% charge during the sixth year.
[GRAPHIC OMITTED: worm chart GROWTH OF A $10,000 INVESTMENT]
Y-axis reads (top to bottom) $45,000 to $0 in $5,000 decrements
X-axis reads (left to right) 10/85 to 10/95 in one year increments
A solid black line represents Fund's Class A at POP
ranging from $9,425 to $37,645
A solid white line represents S&P's 500 Index
ranging from $10,000 to $42,019
A solid gray line represents Consumer Prince Index
ranging from $10,000 to $14,140
Class A S&P 500 CPI
-------- ------- -------
10/85 $9,425 $10,000 $10,000
10/86 12,756 13,315 10,147
10/87 13,156 14,159 10,607
10/88 15,550 16,259 11,058
10/89 18,528 20,531 11,555
10/90 17,792 18,988 12,282
10/91 22,900 25,350 12,640
10/92 25,083 27,866 13,045
10/93 29,787 32,015 13,404
10/94 30,605 33,253 13,753
10/95 37,645 42,019 14,140
Cumulative total return of a $10,000
investment since 10/31/85
S&P 500 Index $42,019
Fund's Class A
shares at POP $37,645
Consumer Price Index $14,140
Footnote reads:
Performance data shown reflect years ended on 10/31. Past
performance is no assurance of future results. A $10,000
investment in the fund's class B shares at inception on
4/27/92 would have been valued at $15,165 on 10/31/95
($14,865 with a redemption at the end of the period). For
class M shares, a $10,000 investment at inception on 5/1/95
would have been valued at $11,188 at NAV and $10,794 at POP.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION
Period ended 10/31/95
CLASS A CLASS B CLASS M
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Distributions:
- ------------------------------------------------------------------------------------
No. 4 4 2
- ------------------------------------------------------------------------------------
Income $0.400 $0.301 $0.184
- ------------------------------------------------------------------------------------
Capital gains:
- ------------------------------------------------------------------------------------
Long-term 0.2444 0.2444 --
Short-term 0.1946 0.1946 --
- ------------------------------------------------------------------------------------
Total 0.8390 0.7400 0.184
- ------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------------
10/31/94 $13.65 $14.48 $13.56 -- --
- ------------------------------------------------------------------------------------
5/1/95 -- -- -- $14.24 $14.76
- ------------------------------------------------------------------------------------
(inception of class M shares)
10/31/95 15.77 16.73 15.63 15.74 16.31
- ------------------------------------------------------------------------------------
Current return: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------------
Current dividend rate1 2.54% 2.39% 1.87% 2.34% 2.26%
- ------------------------------------------------------------------------------------
Current 30-day SEC yield2 2.87 2.70 2.09 2.38 2.29
- ------------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or POP at end of period.
2 Based on investment income, calculated using SEC guidelines.
</TABLE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales
charge.
CLASS B SHARES may be subject to a sales charge upon
redemption.
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.
NET ASSET VALUE (NAV) is the value of each class's assets,
minus any liabilities, divided by the number of outstanding
shares, not including any initial or contingent deferred
sales charge.
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
maximum 5.75% 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 shares and assumes
redemption at the end of the period. Your fund's 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.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of large-
capitalization common stocks and is frequently used as a
general gauge of stock market performance. It assumes
reinvestment of all distributions and does not take into
account brokerage commissions or other costs. The fund's
portfolio contains securities that do not match those in the
index and may pose different risks. It is not possible to
invest directly in an index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of
inflation; it does not represent an investment return.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 9/30/95
(MOST RECENT CALENDAR QUARTER)
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 25.55% 18.31% 24.71% 19.71% -- --
- -----------------------------------------------------------------------------------------------
5 years 112.97 100.70 -- -- -- --
Annual average 16.32 14.95 -- -- -- --
- -----------------------------------------------------------------------------------------------
10 years 321.26 296.99 -- -- -- --
Annual average 15.47 14.78 -- -- -- --
- -----------------------------------------------------------------------------------------------
Life of class B -- -- 53.98 50.98 -- --
Annual average -- -- 13.41 12.76 -- --
- -----------------------------------------------------------------------------------------------
Life of class M -- -- -- -- 13.52% 9.52%
- -----------------------------------------------------------------------------------------------
Performance data represent past results, do not reflect future performance, and will differ for each share
class. They do not take into account any adjustment for taxes payable on reinvested distributions or, for
class A shares, distribution fees prior to implementation of the class distribution plan in 1990. Investment
returns and net asset value will fluctuate so that an investor's shares when sold may be worth more or less
than their original cost.
</TABLE>
Report of independent accountants
For the Fiscal Year Ended October 31, 1995
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 portfolio of investments owned,
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,
1995, and the results of its operations, the changes in its
net assets, and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. 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 generally
accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about
whether the financial statements are free from 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, 1995 by correspondence with
the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were
not received, provide a reasonable basis for the opinion
expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 15, 1995
PORTFOLIO OF INVESTMENTS OWNED
October 31, 1995
<TABLE>
<CAPTION>
COMMON STOCKS (93.1%) (a)
NUMBER OF SHARES VALUE
AEROSPACE AND DEFENSE (1.4%)
- -------------------------------------------------------------------------------------------------------------
<C> <S> <C>
340,050 Boeing Co. 22,315,781
1,822,900 Lockheed Martin Corp. 124,185,063
494,100 Rockwell International Corp. 21,987,450
268,250 Sundstrand Corp. 16,430,313
------------------
184,918,607
AUTOMOTIVE (1.9%)
- -------------------------------------------------------------------------------------------------------------
2,150,518 Chrysler Corp. 111,020,492
476,500 Dana Corp. 12,210,313
2,731,500 General Motors Corp. 119,503,125
47,500 Varity Corp. (NON) 1,721,875
------------------
244,455,805
BASIC INDUSTRIAL PRODUCTS (2.3%)
- -------------------------------------------------------------------------------------------------------------
950,000 Ball Corp. 26,243,750
564,000 CBI Industries, Inc. 17,554,500
337,700 Case Corp. 12,874,813
956,150 Caterpillar, Inc. 53,663,919
1,454,229 Deere (John) & Co. 129,971,717
1,615,150 General Signal Corp. 51,482,906
60,000 Harnischfeger Industries, Inc. 1,890,000
218,700 Minnesota Mining & Manufacturing Co. 12,438,563
------------------
306,120,168
BUILDING AND CONSTRUCTION (0.3%)
- -------------------------------------------------------------------------------------------------------------
442,455 Armstrong World Industries, Inc. 26,270,766
651,400 Masco Corp. 18,320,625
------------------
44,591,391
BUSINESS AND EQUIPMENT SERVICES (3.6%)
- -------------------------------------------------------------------------------------------------------------
2,969,650 Dun & Bradstreet Corp. 177,436,588
1,442,950 IBM Corp. 140,326,888
1,181,850 Xerox Corp. 153,345,038
------------------
471,108,514
CHEMICALS (3.9%)
- -------------------------------------------------------------------------------------------------------------
249,350 Dow Chemical Co. 17,111,644
1,992,614 du Pont (E.I.) de Nemours & Co. 124,289,298
534,350 Eastman Chemical Co. 31,793,825
2,238,690 Grace (W.R.) & Co. 124,806,968
41,000 Olin Corp. 2,624,000
3,275,700 Union Carbide Corp. 124,067,138
COMMON STOCKS
NUMBER OF SHARES VALUE
CHEMICALS (continued)
- -------------------------------------------------------------------------------------------------------------
3,037,800 Witco Chemical Corp. 85,817,850
------------------
510,510,723
CONGLOMERATES (5.1%)
- -------------------------------------------------------------------------------------------------------------
703,600 Coltec Industries Inc. (NON) 7,651,650
500,000 GenCorp, Inc. 5,250,000
323,500 General Motors Corp. Class H 13,587,000
1,110,250 ITT Corp. 136,005,625
308,650 Johnson Controls Inc. 17,978,863
1,744,550 Ogden Corp. 39,688,513
2,471,700 Tenneco Inc. 108,445,838
3,492,900 TRW, Inc. 229,658,175
1,233,650 United Technologies Corp. 109,486,438
------------------
667,752,102
CONSUMER DURABLE GOODS (0.3%)
- -------------------------------------------------------------------------------------------------------------
2,081,100 Maytag Corp. 39,540,900
CONSUMER NON DURABLES (7.7%)
- -------------------------------------------------------------------------------------------------------------
3,195,100 American Brands, Inc. 136,989,913
3,484,200 Avon Products, Inc. 247,813,725
95,000 Dimon Inc. 1,389,375
3,596,500 Kimberly-Clark Corp. 261,195,813
4,368,135 Philip Morris Cos., Inc. 369,107,408
------------------
1,016,496,234
ELECTRONICS AND ELECTRICAL EQUIPMENT (1.8%)
- -------------------------------------------------------------------------------------------------------------
637,900 Eaton Corp. 32,692,375
2,733,950 General Electric Co. 172,922,338
744,300 Honeywell, Inc. 31,260,600
------------------
236,875,313
ENVIRONMENTAL CONTROL (0.5%)
- -------------------------------------------------------------------------------------------------------------
2,455,000 WMX Technologies, Inc. 69,046,875
FOOD (2.0%)
- -------------------------------------------------------------------------------------------------------------
935,700 Anheuser-Busch Cos., Inc. 61,756,200
100,000 Archer Daniels Midland Co. 1,612,500
50,000 Dole Food Co. 1,881,250
1,625,250 General Mills, Inc. 93,248,719
2,363,400 Heinz (H.J.) Co. 109,898,100
------------------
268,396,769
FOREST PRODUCTS (1.2%)
- -------------------------------------------------------------------------------------------------------------
366,175 Rayonier, Inc. 13,731,563
3,119,000 Weyerhaeuser Co. 137,625,875
------------------
151,357,438
COMMON STOCKS
NUMBER OF SHARES VALUE
HEALTH CARE (1.7%)
- -------------------------------------------------------------------------------------------------------------
5,806,250 Baxter International, Inc. 224,266,406
INSURANCE AND FINANCE (15.8%)
- -------------------------------------------------------------------------------------------------------------
694,250 AON Corp. 28,551,031
2,283,800 Aetna Life & Casualty Co. 160,722,425
1,903,977 Allstate Corp. 69,971,155
3,139,400 American General Corp. 103,207,775
3,215,050 BankAmerica Corp. 184,865,375
2,495,996 Bankers Trust New York Corp. 159,119,745
255,207 Bear Stearns Companies, Inc. 5,072,239
2,840,900 Beneficial Corp. 139,204,100
1,169,150 CIGNA Corp. 115,891,994
1,026,700 CoreStates Financial Corp. 37,346,213
855,850 Federal National Mortgage Association 89,757,269
5,593,750 Fleet Financial Group, Inc. 216,757,813
3,064,700 Keycorp 103,433,625
3,311,302 Morgan (J.P.) & Co., Inc. 255,384,167
498,300 National City Corp. 15,385,013
2,259,250 NationsBank Corp. 148,545,688
4,247,000 PNC Bank Corp. 111,483,750
2,050,900 Reliance Group Holdings, Inc. 15,125,388
2,800,000 USF&G Corp. 46,900,000
312,500 Wells Fargo & Co. 65,664,063
------------------
2,072,388,828
METALS AND MINING (0.5%)
- -------------------------------------------------------------------------------------------------------------
57,500 Alumax, Inc. (NON) 1,696,250
180,000 Freeport McMoran, Inc. 6,727,500
1,856,360 Freeport-McMoRan Copper & Gold Co., Inc. Class A 42,464,235
757,872 Freeport-McMoRan Copper & Gold Co., Inc. Class B 17,241,588
------------------
68,129,573
OIL AND GAS (11.6%)
- -------------------------------------------------------------------------------------------------------------
2,279,300 Amoco Corp. 145,590,288
663,700 Atlantic Richfield Co. 70,849,975
1,465,995 British Petroleum PLC ADR (United Kingdom) 129,374,059
47,500 Columbia Gas System, Inc. (NON) 1,828,750
3,887,100 Enron Corp. 133,619,063
2,668,350 Exxon Corp. 203,795,231
654,400 McDermott International, Inc. 10,388,600
1,304,150 Mobil Corp. 131,393,113
5,992,477 Occidental Petroleum Corp. 128,838,256
1,207,550 Panhandle Eastern Corp. 30,490,638
425,900 Pennzoil Co. 16,077,725
3,858,684 Phillips Petroleum Co. 124,442,559
728,000 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 89,453,000
3,214,200 Sonat, Inc. 92,408,250
1,402,350 Texaco, Inc. 95,535,094
3,939,826 Total Corp. ADR (France) 121,642,128
82,500 Union Pacific Resources Group Inc. (NON) 1,876,875
------------------
1,527,603,604
COMMON STOCKS
NUMBER OF SHARES VALUE
PHARMACEUTICALS (6.2%)
- -------------------------------------------------------------------------------------------------------------
1,498,250 American Home Products Corp. 132,782,406
2,275,400 Bristol-Myers Squibb Co. 173,499,250
36,750 Lilly (Eli) & Co. 3,550,969
255,200 Schering-Plough Corp. 13,685,100
650,000 Smithkline Beecham PLC ADR (United Kingdom) 33,718,750
4,797,750 Upjohn Co. 243,485,813
2,590,450 Warner-Lambert Co. 220,512,056
------------------
821,234,344
PHOTOGRAPHY (2.2%)
- -------------------------------------------------------------------------------------------------------------
4,564,650 Eastman Kodak Co. 285,861,206
42,500 Polaroid Corp. 1,816,875
------------------
287,678,081
PUBLISHING (1.1%)
- -------------------------------------------------------------------------------------------------------------
497,500 Dow Jones & Co., Inc. 17,536,875
1,575,750 McGraw-Hill, Inc. 129,014,531
------------------
146,551,406
REAL ESTATE (1.3%)
- -------------------------------------------------------------------------------------------------------------
500,000 Avalon Properties, Inc. 9,750,000
611,000 Beacon Properties Corp. 13,289,250
349,900 Bradley Real Estate Trust, Inc. 5,029,813
1,130,000 Debartolo Realty Corp. 14,690,000
133,600 Kranzco Realty Trust 2,037,400
336,000 LTC Properties, Inc. 4,872,000
397,600 Macerich Co. 8,001,700
1,599,400 Meditrust Corp. 53,979,750
166,000 National Health Investors, Inc. 4,980,000
415,000 Nationwide Health Properties, Inc. 17,066,875
352,200 Smith (Charles E.) Residential Realty, Inc. 8,188,650
124,200 Starwood Lodging Trust 3,384,450
500,000 Storage USA, Inc. 14,625,000
228,000 Tanger Factory Outlet Center 5,358,000
225,000 Wellsford Residential Property Trust 4,443,750
------------------
169,696,638
RETAIL (4.1%)
- -------------------------------------------------------------------------------------------------------------
10,452,800 K mart Corp. 84,929,000
53,000 Kroger Co. (NON) 1,768,875
1,000,000 Limited, Inc. (The) 18,375,000
750,000 May Department Stores Co. 29,437,500
4,150,500 Melville Corp. 132,816,000
2,750,000 Penney (J.C.) Co., Inc. 115,843,750
2,300,000 Rite Aid Corp. 62,100,000
2,849,900 Sears, Roebuck & Co. 96,896,600
------------------
542,166,725
TRANSPORTATION (3.4%)
- -------------------------------------------------------------------------------------------------------------
258,400 CSX Corp. 21,641,000
1,627,650 Conrail, Inc. 111,900,938
COMMON STOCKS
NUMBER OF SHARES VALUE
TRANSPORTATION (CONTINUED)
- -------------------------------------------------------------------------------------------------------------
1,239,150 Norfolk Southern Corp. 95,724,338
3,240,000 Ryder System, Inc. 78,165,000
2,104,100 Union Pacific Corp. 137,555,538
------------------
444,986,814
UTILITIES (13.2%)
- -------------------------------------------------------------------------------------------------------------
2,339,650 American Telephone & Telegraph Co. 149,737,600
2,635,100 Bell Atlantic Corp. 167,658,238
879,700 BellSouth Corp. 67,297,050
3,911,007 Cinergy Corp. 110,974,824
1,614,900 Consolidated Edison Co. of New York, Inc. 49,052,588
2,300,000 Entergy Corp. 65,550,000
633,500 Frontier Corp. 17,104,500
480,800 Houston Industries, Inc. 22,297,100
2,000,000 Long Island Lighting Co. 34,000,000
3,744,232 NYNEX Corp. 175,978,904
4,522,850 Northeast Utilities Co. 111,940,538
2,469,450 Peco Energy Co. 72,231,413
1,933,900 Potomac Electric Power Co. 48,347,500
519,150 Public Service Co. of Colorado 17,715,994
4,700,850 Public Service Enterprise Group, Inc. 138,087,469
962,500 SBC Communications, Inc. 53,779,688
4,172,700 Sprint Corp. 160,648,950
3,842,500 Texas Utilities Electric Co. 141,211,875
2,327,368 US West, Inc. 110,840,901
615,309 Union Electric Co. 23,997,051
------------------
1,738,452,183
------------------
TOTAL COMMON STOCKS (cost $10,592,694,879) $12,254,325,441
------------------
CONVERTIBLE PREFERRED STOCKS (1.0%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
153,850 Ford Motor Co. Ser. A, $4.20, dep. shs. cv. pfd. $14,461,900
1,054,700 Unisys Corp. Ser. A, $3.75 cv. pfd. 29,004,250
326,750 Citicorp Ser. 13, $5.38 cv. pfd. 58,079,813
450,000 Freeport-McMoRan Copper Co., Inc.
stepped-coupon $1.25 ($1.75, 8/1/96) (STP) 10,743,750
800,000 Atlantic Ritchfield Co. $2.23 cv. pfd. 17,900,000
------------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $125,347,882) $130,189,713
CONVERTIBLE BONDS AND NOTES (0.9%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$28,700,000 Banco Nacional de Mexico SA cv. bonds 7s, 1999 (Mexico) $22,386,000
27,100,000 Comcast Corp. cv. notes 1 1/8s, 2007 13,346,750
32,000,000 Mitsubishi Bank Ltd. International Finance (Bermuda) cv. trust
guaranteed notes 3s, 2002 (Japan) 33,200,000
116,825,000 Roche Holdings, Inc., 144A cv. unsub. Liquid Yield Option Note
zero %, 2010 (Switzerland) 48,482,375
------------------
TOTAL CONVERTIBLE BONDS AND NOTES (cost $113,486,534) $117,415,125
CORPORATE BONDS AND NOTES (0.2%) (a) (cost $24,521,875)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$19,000,000 Siemens Capital Corp. Co. Guaranty 8s, 2002 (Germany) $25,317,500
U.S. GOVERNMENT AND AGENCY OBLIGATIONS ( - %) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$3,627 11 1/2s with various due dates from March 15, 2010, to March 15, 2013 $4,119
4,835 11s, January 15, 2010 5,419
184,720 7 1/2s with various due dates from February 15, 2007, to April 15, 2007 189,915
577,483 7 1/4s with various due dates from February 15, 2005, to March 15, 2005 595,146
342,592 9s with various due dates from December 15, 2004, to June 15, 2011 364,969
- -------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS (cost $1,071,857) $1,159,568
SHORT-TERM INVESTMENTS (5.7%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$16,500,000 A I Credit Corp. 5.7s, November 1, 1995 $16,500,000
25,000,000 American Telephone & Telegraph Capital Corp. 5.62s,
December 4, 1995 24,871,208
75,000,000 Ciesco L.P. 5.65s to 5.68s, with various due dates
from November 2, 1995 to November 17, 1995 74,909,632
33,500,000 Federal Home Loan Bank 5.5s to 5.54s, with various due dates
from January 18, 1996 to February 7, 1996 33,020,730
45,300,000 Federal Home Loan Mortgage Corp. 5.48s to 5.6s, with various
due dates from December 4, 1995 to December 21, 1995 45,022,857
307,075,000 Federal National Mortgage Association 5.5s to 5.75s, with
various due dates from November 3, 1995 to April 5, 1996 304,765,220
25,000,000 General Electric Capital Corp. 5.63s, November 6, 1995 24,980,452
25,000,000 General Motors Acceptance Corp. 5.78s, November 1, 1995 25,000,000
25,000,000 Hewlett Packard Co. 5.63s, January 10, 1996 24,722,868
50,000,000 Metropolitan Life Funding, 5.65s to 5.67s, with various due dates
from December 6, 1995 to December 12, 1995 49,705,257
25,000,000 Morgan (J.P.) & Co., Inc. 5.7s, November 6, 1995 24,980,208
21,175,000 Preferred Receivables Funding Corp. 5.73s, November 16, 1995 21,124,445
30,000,000 USAA Capital Corp. 5.65s, November 7, 1995 29,971,750
53,829,000 Interest in $357,916,000 joint repurchase agreement
dated October 31, 1995 with Lehman Brothers Inc.
due November 1, 1995 with respect to various U. S. Treasury
obligations-maturity value of $53,837,762 for an effective
yield of 5.86% 53,837,762
------------------
TOTAL SHORT-TERM INVESTMENTS (cost $753,423,930) $753,412,389
- -------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (cost $11,610,546,957) (b) $13,281,819,736
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $13,163,246,377.
(STP) The dividend rate and date shown parenthethically represent
the new dividend rate to be paid and the date the fund will
begin receiving dividend at this rate.
(NON) Non-income producting securities.
(b) The aggregate identified cost for federal income tax purposes
is $11,643,643,452, resulting in gross unrealized appreciation and
depreciation of $1,968,027,725 and $329,851,441 respectively, or
net unrealized appreciation of $1,638,176,284.
ADR after the name of a foreign holding, stands for
American Depository Receipt representing foreign securities
on deposit with a domestic custodian bank.
144A after the name of a security represents those exempt from
registration under rule 144A of the Securities Act of 1933.
These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
<S> <C>
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost
$11,610,546,957) (Note 1) $13,281,819,736
- -------------------------------------------------------------------------------
Cash 403
- -------------------------------------------------------------------------------
Interest and dividends receivable 30,708,754
- -------------------------------------------------------------------------------
Receivable for shares of the fund sold 34,323,309
- -------------------------------------------------------------------------------
Receivable for securities sold 106,556,564
- -------------------------------------------------------------------------------
TOTAL ASSETS 13,453,408,766
LIABILITIES
- -------------------------------------------------------------------------------
Payable for securities purchased 254,505,850
- -------------------------------------------------------------------------------
Payable for shares of the fund repurchased 9,681,751
- -------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 14,490,021
- -------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 5,572
- -------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,512
- -------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 6,012,421
- -------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2 ) 3,915,881
- -------------------------------------------------------------------------------
Other accrued expenses 1,544,381
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 290,162,389
- -------------------------------------------------------------------------------
NET ASSETS $13,163,246,377
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in-capital (Notes 1 and 4) $10,898,704,222
- -------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 46,517,767
- -------------------------------------------------------------------------------
Accumulated net realized gain on investment transactions
(Note 1) 546,751,609
- -------------------------------------------------------------------------------
Net unrealized appreciation on investments 1,671,272,779
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO CAPITAL
SHARES OUTSTANDING $13,163,246,377
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($7,859,495,570 divided by 498,462,066 shares) $15.77
- -------------------------------------------------------------------------------
Offering price per Class A share (100/94.25 of $15.77)* $16.73
- -------------------------------------------------------------------------------
Net asset value and offering price of class B shares
($5,089,358,931 divided by 325,545,785 shares)+ $15.63
- -------------------------------------------------------------------------------
Net asset value and redemption price of class M shares
($21,099,961 divided by 1,340,766 shares) $15.74
- -------------------------------------------------------------------------------
Offering price per Class M share (100/96.50 of $15.74)* $16.31
- -------------------------------------------------------------------------------
Net asset value, offering price and redemption price of
class Y shares ($193,291,915 divided by 12,248,416 shares) $15.78
- -------------------------------------------------------------------------------
* 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.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended October 31, 1995
<S> <C>
INVESTMENT INCOME
- -------------------------------------------------------------------------------
Interest $62,275,920
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,416,025) 382,186,777
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 444,462,697
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 2) 49,858,049
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 17,444,021
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 188,524
- -------------------------------------------------------------------------------
Reports to shareholders 180,568
- -------------------------------------------------------------------------------
Auditing 142,925
- -------------------------------------------------------------------------------
Legal 124,349
- -------------------------------------------------------------------------------
Postage 1,050,768
- -------------------------------------------------------------------------------
Registration Fees 742,358
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 16,932,743
- -------------------------------------------------------------------------------
Distribution fees -- Class B ( Note 2) 40,651,207
- -------------------------------------------------------------------------------
Distribution fees -- Class M ( Note 2) 35,250
- -------------------------------------------------------------------------------
Administrative services (Note 2) 81,896
- -------------------------------------------------------------------------------
Other expenses 307,253
- -------------------------------------------------------------------------------
TOTAL EXPENSES 127,739,911
- -------------------------------------------------------------------------------
Expense Reduction (Note 2) (1,384,352)
- -------------------------------------------------------------------------------
NET EXPENSES 126,355,559
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 318,107,138
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 567,738,792
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 1,368,165,037
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 1,935,903,829
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,254,010,967
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
October 31, 1995
Year ended October 31
---------------------
1995 1994
<S> <C> <C>
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $318,107,138 $241,197,241
- -------------------------------------------------------------------------------
Net realized gain on investments 567,738,792 275,752,923
- -------------------------------------------------------------------------------
Net unrealized appreciation (depreciation)
of investments 1,368,165,037 (285,247,436)
- -------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 2,254,010,967 231,702,728
- -------------------------------------------------------------------------------
Distributions to shareholders:
- -------------------------------------------------------------------------------
From net investment income:
Class A (186,528,064) (173,423,625)
- -------------------------------------------------------------------------------
Class B (84,305,152) (63,658,537)
- -------------------------------------------------------------------------------
Class M (104,438) -
- -------------------------------------------------------------------------------
Class Y (2,521,806) (215,501)
- -------------------------------------------------------------------------------
From net realized gain on investments:
Class A (193,525,619) (200,887,376)
- -------------------------------------------------------------------------------
Class B (109,385,623) (75,867,323)
- -------------------------------------------------------------------------------
Class Y (882,814) -
- -------------------------------------------------------------------------------
INCREASE FROM CAPITAL SHARE TRANSACTIONS 2,130,825,036 2,603,981,403
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 3,807,582,487 2,321,631,769
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of year 9,355,663,890 7,034,032,121
- -------------------------------------------------------------------------------
END OF YEAR (including undistributed net
investment income of $46,517,767
and $1,776,815, respectively) $13,163,246,377 $9,355,663,890
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<CAPTION>
June 15,1994 May 1, 1995
(commencement (commencement
Year ended of operations) of operations)
October 31 to October 31 to October 31 Year ended October 31
------------------------------------------------------------------------
1995* 1994 1995* 1995* 1994
------------------------------------------------------------------------
Class Y Class M Class B
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $13.66 $13.46 $14.24 $13.56 $14.18
- ---------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income .49 .12 .15 .35 .35
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 2.50 .19 1.53 2.46 (.09)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT ACTIVITIES 2.99 .31 1.68 2.81 .26
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (.43) (.11) (.18) (.30) (.34)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.44) -- -- (.44) (.54)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.87) (.11) (.18) (.74) (.88)
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.78 $13.66 $15.74 $15.63 $13.56
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NAV (%) (a) 23.28 2.28(b) 11.88(b) 21.91 2.01
- ---------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $193,292 $27,632 $21,100 $5,089,359 $3,318,858
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .64 .26(b) .66(b) 1.64 1.70
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 3.14 1.17(b) 1.12(b) 2.42 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 58.40 48.76 58.40 58.40 48.76
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
(For a share outstanding throughout the period)
<CAPTION>
April 27,1992
(commencement
of operations) to
October 31
---------------------------------------------
1993* 1992* 1995*
---------------------------------------------
Class B Class A
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $12.88 $12.69 $13.65
- ------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- -------------------------------------------------------------------------------------------------------
Net investment income .31 .18 .46
- ------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 1.89 .26 2.50
- ------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT ACTIVITIES 2.20 .44 2.96
- ------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- ------------------------------------------------------------------------------------------------------
Net investment income (.44) (.25) (.40)
- ------------------------------------------------------------------------------------------------------
Net realized gain on investments (.46) -- (.44)
- ------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.90) (.25) (.84)
- ------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.18 $12.88 $15.77
- ------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NAV (%) (a) 17.86 3.47(b) 23.00
- ------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $1,819,793 $288,121 $7,859,496
- ------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) 1.68 .97(b) .89
- ------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 2.27 1.15(b) 3.20
- ------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 64.02 66.63 58.40
- ------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (continued)
(For a share outstanding throughout the period)
<CAPTION>
October 31 Year Ended October 31
-------------------------------------------------------
1994 1993 1992 1991
-------------------------------------------------------
Class A
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $14.26 $12.92 $12.82 $10.87
- ---------------------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
- ---------------------------------------------------------------------------------------------------------------
Net investment income .44 .43 .48 .54
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments (.08) 1.88 .65 2.46
- ---------------------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT ACTIVITIES .36 2.31 1.13 3.00
- ---------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
- ---------------------------------------------------------------------------------------------------------------
Net investment income (.43) (.51) (.54) (.62)
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments (.54) (.46) (.49) (.43)
- ---------------------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS (.97) (.97) (1.03) (1.05)
- ---------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $13.65 $14.26 $12.92 $12.82
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NAV (%) (a) 2.74 18.75 9.53 28.71
- ---------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (in thousands) $6,009,174 $5,214,239 $3,517,199 $2,688,047
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)(c) .95 .93 1.07 .95
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average
net assets (%) 3.18 3.18 3.72 4.45
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 48.76 64.02 66.63 77.06
- ---------------------------------------------------------------------------------------------------------------
* Per share net investment income has been determined on the basis of the weighted average number of shares
outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
(c) The ratio of expenses to average net assets for the period ended October 31, 1995 includes amounts paid
through brokerage service and expense offset arrangements. Prior period ratios exclude these amounts. (See
Note 2)
</TABLE>
NOTES TO FINANCIAL STATEMENTS
October 31, 1995
Note 1
SIGNIFICANT ACCOUNTING POLICIES
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.
The fund offers class A, class B , class M and class Y
shares. The fund commenced offering its class M shares on
May 1, 1995. Class A shares are sold with a maximum front-
end sales charge of 5.75%. Class B shares 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 M shares are
sold with a maximum front-end sales charge of 3.50% and pay
an ongoing distribution fee that is lower than class B
shares and higher than class A shares. Class Y shares, which
are sold at net asset value, are generally subject to the
same expenses as class A shares, class B shares and class M
shares, but do not bear a distribution fee. Class Y shares
are sold to defined contribution plans that initially invest
or intend to invest a specific amount in a combination of
Putnam funds. 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 policies are in
conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market
quotations are readily available are stated at market value,
which is determined using the last reported sale price, or,
if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid
price, except that certain U.S. government obligations are
stated at the mean between the bid and asked prices. Short-
term investments having remaining maturities of 60 days or
less are stated at amortized cost which approximates market,
and other investments are stated at fair value following
procedures approved by the Trustees.
B) JOINT TRADING ACCOUNT Pursuant to an exemptive order
issued by the Securities and Exchange Commission, the fund
may transfer uninvested cash balances into a joint trading
account along with the cash of other registered investment
companies managed by Putnam Investment Management, Inc.
("Putnam Management"), the fund's manager, a wholly-owned
subsidiary of Putnam Investments, Inc. and certain other
accounts. These balances may be invested in one or more
repurchase agreements and/or short-term money market
instruments.
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. 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). Interest income
is recorded on the accrual basis and 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. Discounts on
zero coupon bonds, original issue, stepped-coupon bonds and
payment in kind bonds are accreted according to the
effective yield method.
E) 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.
Therefore, no provision has been made for federal taxes on
income, capital gains or unrealized appreciation of
securities held and excise tax on income and capital gains.
F) DISTRIBUTIONS TO SHAREHOLDERS Distributions to
shareholders from net investment income are recorded by the
fund on the ex-dividend date. Capital gain distributions, if
any, are recorded on the ex-dividend date and paid
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 treatment
of losses on wash sale transactions 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, 1995, the fund reclassified
$93,274 to increase undistributed net investment income and
$351,989 to increase paid-in-capital, with a decrease to
accumulated net realized gains of $445,263.
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 for the quarter. 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, and, 0.45% of the
next $5 billion, 0.425% of the next $5 billion, 0.405% of
the next $5 billion, 0.390% of the next $5 billion, and
0.380% of any excess thereafter subject to reduction in any
year to the extent that expenses (exclusive of brokerage,
interest, taxes, credits allowed by PFTC and distribution
fees) of the fund exceed 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million and 1.5% of
any excess over $100 million and by the amount of certain
brokerage commissions and fees (less expenses) received by
affiliates of the Manager on the fund's portfolio
transactions.
The fund also reimburses Putnam Management 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.
Trustees of the fund receive an annual Trustee's fee of
$10,010, and an additional fee for each Trustees' meeting
attended. Trustees who are not interested persons of the
Manager and who serve on committees of the Trustees receive
additional fees for attendance at certain committee
meetings.
During the year ended October 31, 1995, the fund adopted a
Trustee Fee Deferral Plan (the "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 in the fund and are invested in the
fund or in other Putnam funds until distribution in
accordance with the Plan.
Custodial functions for the fund are being provided by
Putnam Fiduciary Trust Company (PFTC), a wholly-owned
subsidiary of Putnam Investments, Inc. Investor servicing
agent functions are provided by Putnam Investor Services, a
division of PFTC.
For the year ended October 31, 1995, fund expenses were
reduced by $1,384,352 under an expense offset arrangement
with PFTC and brokerage service arrangements. Investor
servicing and custodian fees reported in the Statement of
operations exclude these credits. The fund could have
invested a portion of the assets utilized in connection with
the expense offset arrangement in an income-producing asset
if it had not entered into such arrangements.
The fund has adopted distribution plans (the "Plans") with
respect to its class A, class B 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 Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments 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 Mutual Funds Corp. at an
annual rate up to 0.35%, 1.00% and 1.00% of the average net
assets attributable to class A, class B and class M shares,
respectively. The Trustees have approved payment by the
fund at an annual rate of 0.25%, 1.00% and 0.75% of the
average net assets attributable to class A, class B and
class M shares, respectively.
For the year ended October 31, 1995, Putnam Mutual Funds
Corp., acting as underwriter received net commissions of
$4,562,142 and $41,338 from the sale of class A and class M
shares, respectively, and $7,117,759 in contingent deferred
sales charges from redemptions of class B shares. A deferred
sales charge of up to 1% is assessed on certain redemptions
of class A shares. For the year ended October 31, 1995,
Putnam Mutual Funds Corp., acting as underwriter received
$24,254 on class A redemptions.
Note 3
PURCHASES AND SALES OF SECURITIES
During the year ended October 31, 1995, purchases and sales
of investment securities other than U.S. government
obligations and short-term investments aggregated
$7,574,498,181 and $5,359,646,998, respectively. Purchases
and sales of U.S. government obligations aggregated
$484,969,253 and $767,363,737, respectively. In determining
the net gain or loss on securities sold, the cost of
securities has been determined on the identified cost basis.
Note 4
CAPITAL SHARES
At October 31, 1995, there was an unlimited number of shares
of beneficial interest authorized divided into four classes,
designated class A, class B, class M and class Y capital
stock. Transactions in capital shares were as follows:
YEAR ENDED OCTOBER 31, 1995
CLASS A SHARES AMOUNT
- ----------------------------------------------------
Shares sold 106,699,884 $1,535,276,912
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 26,155,203 345,499,774
- ----------------------------------------------------
132,855,087 1,880,776,686
Shares
repurchased (74,467,149) (1,063,380,132)
- ----------------------------------------------------
NET INCREASE 58,387,938 $817,396,554
- ----------------------------------------------------
YEAR ENDED OCTOBER 31, 1994
CLASS A SHARES AMOUNT
- ----------------------------------------------------
Shares sold 106,255,480 $1,437,865,777
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 24,903,676 336,303,950
- ----------------------------------------------------
131,159,156 1,774,169,727
Shares
repurchased (56,613,258) (765,234,815)
- ----------------------------------------------------
NET INCREASE 74,545,898 $1,008,934,912
- ----------------------------------------------------
YEAR ENDED OCTOBER 31, 1995
CLASS B SHARES AMOUNT
- ----------------------------------------------------
Shares sold 103,563,018 $1,481,487,774
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 13,827,849 180,565,029
- ----------------------------------------------------
117,390,867 1,662,052,803
Shares
repurchased (36,574,502) (517,036,794)
- ----------------------------------------------------
NET INCREASE 80,816,365 $1,145,016,009
- ----------------------------------------------------
YEAR ENDED OCTOBER 31, 1994
CLASS B SHARES AMOUNT
- ----------------------------------------------------
Shares sold 131,189,830 $1,765,548,750
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,653,561 129,687,483
- ----------------------------------------------------
140,843,391 1,895,236,233
Shares
repurchased (24,490,786) (327,825,478)
- ----------------------------------------------------
NET INCREASE 116,352,605 $1,567,410,755
- ----------------------------------------------------
FOR THE PERIOD MAY 1, 1995
(COMMENCEMENT OF
OPERATIONS)
TO OCTOBER 31, 1995
CLASS M SHARES AMOUNT
- ----------------------------------------------------
Shares sold 1,408,277 $21,457,349
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 6,677 102,694
- ----------------------------------------------------
1,414,954 21,560,043
Shares
repurchased (74,188) (1,150,413)
- ----------------------------------------------------
NET INCREASE 1,340,766 $20,409,630
- ----------------------------------------------------
YEAR ENDED OCTOBER 31, 1995
CLASS Y SHARES AMOUNT
- ----------------------------------------------------
Shares sold 11,259,867 $163,682,273
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 240,803 3,404,620
- ----------------------------------------------------
11,500,670 167,086,893
Shares
repurchased (1,274,438) (19,084,050)
- ----------------------------------------------------
NET INCREASE 10,226,232 $148,002,843
- ----------------------------------------------------
FOR THE PERIOD JUNE 15, 1994
(COMMENCEMENT OF
OPERATIONS)
TO OCTOBER 31, 1994
CLASS Y SHARES AMOUNT
- ----------------------------------------------------
Shares sold 2,024,404 $27,663,387
- ----------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 15,650 215,661
- ----------------------------------------------------
2,040,054 27,879,048
Shares
repurchased (17,870) (243,312)
- ----------------------------------------------------
NET INCREASE 2,022,184 $27,635,736
- ----------------------------------------------------
FEDERAL TAX INFORMATION
(Unaudited)
Pursuant to Section 852 of the Internal Revenue code, the
fund hereby designates $0.2444 per share as capital gain
dividends for its taxable year ended October 31, 1995.
The fund designated 61.78% of the distributions from net
investment income as qualifying for the dividends received
deduction for corporations.
The form 1099 you will receive in January 1996 will show the
tax status of all distributions.
OUR COMMITMENT TO QUALITY SERVICE
* CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested
Service Seal for the past five years. In 1994, over 80,000
tests of 55 shareholder service components demonstrated that
Putnam outperformed the industry standard in every category.
* HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as
$25 a month from a Putnam money market fund or from your
checking or savings account.*
* SWITCH FUNDS EASILY.
You can move money from one account to another with the same
class of shares without a service charge. (This privilege is
subject to change or termination.)
* ACCESS YOUR MONEY QUICKLY.
You can get checks sent regularly or redeem shares any
business day at the then-current net asset value, which may
be more or less than the original cost of the shares.
For details about any of these or other services, contact
your financial advisor or call the toll-free number shown
below and speak with a helpful Putnam representative.
* To make an additional investment in this or any other
Putnam fund, contact your financial advisor or call our
toll-free number: 1-800-225-1581.
*Regular investing of course, does not guarantee a profit
or protect against a loss in a declining market.
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
INDEPENDENT
ACCOUNTANTS
Price Waterhouse LLP
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
Eli Shapiro
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Brett C. Browchuk
Vice President
Thomas V. Reilly
Vice President
Anthony I. Kreisel
Vice President and Fund Manager
David L. King
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
John D. Hughes
Senior Vice President
and Treasurer
Beverly Marcus
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. For
more information, or to request a prospectus, call toll
free: 1-800-225-1581.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF,
OR GUARANTEED OR ENDORSED BY, ANY FINANCIAL INSTITUTION; ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
(FDIC), THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY; AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL
AMOUNT INVESTED.
[LOGO: PUTNAM INVESTMENTS]
THE PUTNAM FUNDS
One Post Office Square
Boston Massachusetts, 02109
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
21697-002/881/427 12/95
