The Putnam
Fund for
Growth and
Income
SEMIANNUAL REPORT
April 30, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "For investors looking for a conservative entree to the stock
market . . . the fund has a lot to offer."
- Morningstar Mutual Funds, April 11, 1997
* Reflecting The Putnam Fund for Growth and Income's solid long-term
performance, its class A shares were ranked by Lipper Analytical
Services in the top quartile of the growth and income funds they track
for the 3-, 5- and 10-year periods ended April 30, 1997.* For those
time periods, the fund's class A shares ranked 60 out of 345, 47 out
of 215, and 23 out of 130 funds.
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
19 Financial statements
* Lipper Analytical Services, an independent research organization, ranks
funds according to total return performance. Rankings vary over time and
do not reflect the effects of sales charges. For periods ended 4/30/97,
class A shares ranked 180 out of 546, 60 out of 345, 47 out of 215, and 23
out of 130 for 1-, 3-, 5-, and 10-year performance, respectively. Class B
shares ranked 229 out of 546, 104 out of 345, and 78 out of 215 for 1-, 3-
and 5-year performance, and class M shares ranked 213 out of 546 for
1-year performance. Past performance is not indicative of future results.
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As The Putnam Fund for Growth and Income reached the midpoint of its current
fiscal year on April 30, 1997, it once again demonstrated why its time-tested
strategy has made it popular with investors. What is satisfying to us is that
the fund did not achieve its positive results in the current environment by
following the crowd and investing in the types of stocks that led the market
advance. Instead, with careful analysis, thorough research, and astute
judgment, your fund's managers selected only those investments that, in
their view, had the best prospects of meeting the fund's long-term objectives.
I am pleased to note the addition of Sheldon N. Simon to your fund's
management team. Sheldon joined Putnam as an analyst in 1984 and is now a
senior portfolio manager. He has 13 years of investment experience. In
the following report, the management team provides an in-depth discussion
of performance to date and the outlook for the remainder of fiscal 1997.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 18, 1997
Report from the Fund Managers
David L. King
Anthony I. Kreisel
Hugh H. Mullin
Sheldon N. Simon
If you look at a tree every day, you will see very little change in it. On the
other hand, if you were to reexamine it after a few months' -- or years' --
absence, you would see that it had sprouted new branches or grown taller. In
much the same way, while following the performance of The Putnam Fund for
Growth and Income, you may not notice much growth from day to day, but over
the long term, the fund's steady progress inevitably becomes apparent.
For example, over the short term, the fund seeks to provide competitive
returns with a lesser amount of risk than more aggressive equity investments.
More importantly, though, this 40-year-old fund has shown that its strategy of
identifying undervalued companies with the potential for positive change can
produce much more dramatic results over longer periods. In fact, for the past
49 months (as of April 30, 1997) the fund has never been absent from Lipper's
top quartile of growth and income funds for any 10-year period. (Please see
page 2 for complete Lipper rankings.)
However, for the purposes of this report, we have to examine the success of
our strategy in a short-term time frame. Over the six months ended April 30,
1997, the fund's class A share return of 12.38% at net asset value
outperformed the 10.44% average total return for the funds in the Lipper
Analytical Services growth and income category. The return at the maximum
public offering price for the period was 5.94%. Additional performance results
for class A shares, as well as results for other share classes and comparative
indexes, are listed in the performance summary that begins on page 9.
* FUND STAYS THE COURSE THROUGH A TOPSY-TURVY MARKET
The stock market's positive returns for the semiannual period mask the abrupt
day-to-day changes of many market indexes. For much of the period, the market
was led by large, highly liquid companies believed to have reliable earnings
growth. March, however, brought a month-long correction in stock prices. In a
much-anticipated move, the Federal Reserve Board raised the target for the
federal funds rate one quarter of a percentage point to 5.5%. Investors,
anticipating further changes in interest rates and fearing the worst for
current and future corporate earnings, helped drive the Dow Jones Industrial
Average down nearly 10% by April 11 from its March 11 high. However, as many
corporate sectors announced strong first-quarter earnings, the market began
to recover amid optimism that the economy will continue to grow steadily
with few signs of inflation.
* SEVERAL SUCCESS STORIES MARK PERIOD
During the period, several of the fund's long-time holdings fulfilled our
expectations. One such company was Warner-Lambert, the fund's largest equity
holding at the close of its fiscal year on October 31, 1996. When we bought
the stock, we thought either that it would be an attractive takeover candidate
or two of its new products would rejuvenate the company's earnings. As matters
turned out, Food and Drug Administration approval for the new products came
more quickly than we expected and initial demand for the drugs has been
strong.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 17.4%
Oil and gas 10.0%
Utilities 9.3%
Consumer nondurables 6.3%
Conglomerates 5.6%
Footnote reads:
* Based on net assets as of 4/30/97. Holdings will vary over time.
Along with the correction in the stock market, we witnessed a drop in many
segments of the technology area. We saw the decline as an opportunity to buy
more shares of companies we favored and, as we expected, many technology-
related companies recovered by period's end. One company that performed well
was Texas Instruments. This company epitomized the 1990s wave of corporate
restructuring when it announced sale of its defense unit. In addition, a
rebound in semiconductor prices on the heels of a worldwide supply glut also
helped boost the price of this electronics giant's stock.
One of the most well-publicized comebacks of the period -- and probably the
decade -- was IBM. Following the close of the reporting period, IBM completed
a long march to respectability as it broke a record intraday high of $175.87
set in 1987. This is up from lows just under $50 in 1993 when the current
chairman and chief executive officer, Louis Gerstner, Jr., was appointed.
Back then, we believed if the new management could improve returns, more
free cash flow could be generated. Then the company would have the opportunity
to raise shareholder value by undertaking programs such as raising the
dividend, making strategic acquisitions, or more importantly, in our opinion,
buying back stock. The company has done all three, but IBM shareholders have
particularly benefited from the company's aggressive stock buyback program.
Additionally, following the end of the period, the stock had a two-for-one
split. While these holdings, along with others discussed in this report, were
viewed favorably at the end of the fiscal period, all are subject to review
and adjustment in accordance with the fund's investment strategy and may vary
in the future.
* INDUSTRY SECTORS: IT'S NOT WHAT WE TARGETED, IT'S WHAT WE AVOIDED
Part of the fund's performance during the period was driven by our avoidance
of the many noncyclical, moderate-growth companies favored by the market.
These companies began the period at expensive levels and were even more
expensive by the end of April. Some examples include pharmaceuticals, beverage
companies, and cosmetics. Because of their stocks' lofty price levels, the
companies in these sectors were often harshly punished by Wall Street for the
slightest earnings disappointment.
TOP 10 HOLDINGS
International Business Machines Corp.
Business equipment and services
Minnesota Mining & Manufacturing Co.
Basic industrial products
J.P. Morgan & Co., Inc.
Insurance and finance
Exxon Corp.
Oil and gas
Pharmacia & Upjohn, Inc.
Pharmaceuticals
SBC Communications, Inc.
Utilities
Kimberly-Clark Corp.
Consumer nondurables
General Motors Corp.
Automotive
Phillip Morris Cos., Inc.
Consumer nondurables
Sprint Corp.
Utilities
Footnote reads:
These holdings represent 17.7% of the fund's net assets as of 4/30/97.
Portfolio holdings will vary over time.
Shareholders who scan the fund's holdings will find the names of some
companies within these sectors. That's because we had acquired these stocks
when they appeared extremely undervalued compared with other stocks in their
respective industries. One example was Pharmacia & Upjohn, Inc., one of the
world's largest pharmaceutical companies. The company's pipeline of new
products had all but dried up, much of its profits were hurt by the weak
Japanese yen, and no chairman was in place for several months. We believe
these setbacks have brought the stock price down to levels that do not
reflect its long-term potential. We are confident in the abilities of the
new chairman and expect the price to recover as the company resumes its
product development efforts.
* CONTINUED FOCUS ON GLOBALIZATION AND LONG-TERM RETURNS
We believe our focus on U.S-based multinational companies as an important
theme has been a major factor in the fund's performance. Historically,
geographic expansion has proven to be the most cost-effective route toward
meaningful corporate growth because the development of additional distribution
channels is not as demanding as the development of new products or
technologies.
For some time, the stock market has been led by large, highly liquid companies
believed to have reliable earnings growth. As we have stated in earlier
reports, your fund will not participate to any great extent in this type of
market because, by virtue of its objective, the fund typically will not own
stocks in these kinds of companies. Market-leading companies are generally too
well known and their valuation levels too high to make them candidates for
your fund's portfolio. Instead, we will continue to focus on properly
executing our investment style in order to provide solid long-term returns
with reduced volatility.
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 4/30/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
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 RETURNS FOR PERIODS ENDED APRIL 30, 1997
Class A Class B Class M
(inception date) (11/16/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months 12.38% 5.94% 11.94% 6.94% 12.02% 8.11%
- ----------------------------------------------------------------------------
1 year 20.26 13.36 19.37 14.37 19.60 15.45
- ----------------------------------------------------------------------------
5 years 113.84 101.49 108.87 106.87 -- --
Annual average 16.42 15.04 15.87 15.65 -- --
- ----------------------------------------------------------------------------
10 years 258.50 237.99 -- -- -- --
Annual average 13.62 12.95 -- -- -- --
- ----------------------------------------------------------------------------
Life of class -- -- 108.87 107.87 54.55 49.11
Annual average -- -- 15.84 15.73 24.32 22.11
- ----------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/97
Consumer
S&P 500 Index Price Index
- ----------------------------------------------------------------------------
6 months 14.71% 1.20%
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1 year 25.12 2.50
- ----------------------------------------------------------------------------
5 years 119.75 14.84
Annual average 17.06 2.81
- ----------------------------------------------------------------------------
10 years 274.55 42.15
Annual average 14.12 3.58
- ----------------------------------------------------------------------------
Life of class B 123.25 14.84
Annual average 17.40 2.80
- ----------------------------------------------------------------------------
Life of class M 63.04 5.46
Annual average 27.71 2.70
- ----------------------------------------------------------------------------
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
A distribution plan in 1990. Investment returns and principal 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. CDSC for class B shares
assumes the applicable sales charge, with the maximum being 5%.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/97
Class A Class B Class M
- ----------------------------------------------------------------------------
Distributions (number) 2 2 2
- ----------------------------------------------------------------------------
Income $0.230 $0.164 $0.192
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Capital gains
- ----------------------------------------------------------------------------
Long-term 0.967 0.967 0.967
- ----------------------------------------------------------------------------
Short-term 0.269 0.269 0.269
- ----------------------------------------------------------------------------
Total $1.466 $1.40 $1.428
- ----------------------------------------------------------------------------
Share value NAV POP NAV NAV POP
- ----------------------------------------------------------------------------
10/31/96 $18.27 $19.38 $18.10 $18.21 $18.87
- ----------------------------------------------------------------------------
4/30/97 18.98 20.14 18.78 18.89 19.58
- ----------------------------------------------------------------------------
Current return (end of
period)
- ----------------------------------------------------------------------------
Current dividend rate1 2.42% 2.28% 1.75% 2.11% 1.96%
- ----------------------------------------------------------------------------
Current 30-day SEC yield2 2.19 2.06 1.47 1.65 1.59
- ----------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by
NAV or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/16/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
- ----------------------------------------------------------------------------
6 months 11.33% 4.93% 10.93% 5.93% 10.96% 7.06%
- ----------------------------------------------------------------------------
1 year 18.02 11.24 17.12 12.12 17.36 13.23
- ----------------------------------------------------------------------------
5 years 113.66 101.41 -- -- -- --
Annual average 16.40 15.03 -- -- -- --
- ----------------------------------------------------------------------------
10 years 242.54 222.76 -- -- -- --
Annual average 13.10 12.43 -- -- -- --
- ----------------------------------------------------------------------------
Life of class -- -- 102.53 100.53 49.80 44.53
Annual average -- -- 15.39 15.16 23.43 21.15
- ----------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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.
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.
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 all your fund'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 Stock Index is an index of common stocks frequently
used as a general measure of stock market performance. The index assumes
reinvestment of all distributions and interest payments and does not take
in account brokerage fees or taxes. Securities in the fund do not match
those in the indexes and performance of the fund will differ. 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.
Portfolio of investments owned
April 30, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (95.7%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (1.5%)
- ------------------------------------------------------------------------------------------------------------
2,831,880 Lockheed Martin Corp. $ 253,453,260
1,475,000 Northrop Grumman Corp. 123,162,500
--------------
376,615,760
Automotive (3.4%)
- ------------------------------------------------------------------------------------------------------------
5,000 Bayerische Motoren Werke (BMW) AG (Germany) 4,100,162
245,536 Chrysler Corp. 7,366,080
8,252,300 Ford Motor Co. 286,767,425
7,237,910 General Motors Corp. 418,894,040
3,189,900 Goodyear Tire & Rubber Co. (The) 167,868,488
--------------
884,996,195
Basic Industrial Products (4.5%)
- ------------------------------------------------------------------------------------------------------------
332,100 Case Corp. 18,390,038
4,434,200 Cooper Industries, Inc. 203,973,200
5,980,977 Deere (John) & Co. 275,124,942
1,966,800 General Signal Corp. 77,196,900
6,021,040 Minnesota Mining & Manufacturing Co. 523,830,480
3,072,080 New Holland N.V. (Netherlands) + 67,969,770
--------------
1,166,485,330
Broadcasting (0.2%)
- ------------------------------------------------------------------------------------------------------------
2,468,200 Comcast Corp. Class A 38,874,150
Building and Construction (0.8%)
- ------------------------------------------------------------------------------------------------------------
1,228,305 Armstrong World Industries, Inc. 80,761,054
3,321,990 Masco Corp. 125,405,123
--------------
206,166,177
Business Equipment and Services (5.5%)
- ------------------------------------------------------------------------------------------------------------
300,000 Deluxe Corp. 9,187,500
5,464,590 Hewlett-Packard Co. 286,890,975
3,425,440 IBM Corp. 550,639,480
6,071,920 NCR Corp. + 176,085,680
6,497,740 Xerox Corp. 399,611,010
--------------
1,422,414,645
Chemicals (3.6%)
- ------------------------------------------------------------------------------------------------------------
5,126,100 Bayer AG ADR (Germany) 203,958,800
1,240,260 Dow Chemical Co. 105,267,068
2,264,220 du Pont (E.I.) de Nemours & Co. 240,290,348
3,844,220 Eastman Chemical Co. 196,055,220
185,000 Hercules, Inc. 7,284,375
1,015,200 PPG Industries, Inc. 55,201,500
3,192,300 Witco Chemical Corp. 119,312,213
--------------
927,369,524
Computer Services and Software (0.3%)
- ------------------------------------------------------------------------------------------------------------
1,450,000 Computer Associates Intl., Inc. 75,400,000
Conglomerates (5.6%)
- ------------------------------------------------------------------------------------------------------------
2,827,200 Eaton Corp. 211,686,600
1,210,000 General Electric Co. 134,158,750
3,820,630 General Motors Corp. Class H 205,358,863
3,334,540 ITT Industries, Inc. 84,197,135
1,300,000 Ogden Corp. 27,300,000
3,468,940 Rockwell International Corp. 230,684,510
1,192,200 Tenneco, Inc. 47,538,975
6,880,100 TRW, Inc. 358,625,200
2,245,960 United Technologies Corp. 169,850,725
--------------
1,469,400,758
Consumer Durable Goods (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,932,470 Whirlpool Corp. 230,592,973
Consumer Non Durables (6.3%)
- ------------------------------------------------------------------------------------------------------------
5,042,040 American Brands, Inc. 271,009,650
2,113,600 Avon Products, Inc. 130,250,600
1,708,250 Colgate-Palmolive Co. 189,615,750
8,401,640 Kimberly-Clark Corp. 430,584,050
10,502,860 Philip Morris Cos., Inc. 413,550,113
5,986,270 RJR Nabisco Holdings Corp. 178,091,533
235,000 Tupperware Corp. 7,813,750
--------------
1,620,915,446
Electronics and Electrical Equipment (2.3%)
- ------------------------------------------------------------------------------------------------------------
200,000 Emerson Electric Co. 10,150,000
4,466,240 Motorola, Inc. 255,692,240
1,177,040 Siemens AG (Germany) 63,848,226
3,054,980 Texas Instruments, Inc. 272,656,965
--------------
602,347,431
Environmental Control (0.7%)
- ------------------------------------------------------------------------------------------------------------
6,162,890 WMX Technologies, Inc. 181,034,894
Food and Beverages (2.4%)
- ------------------------------------------------------------------------------------------------------------
4,279,190 Anheuser-Busch Cos., Inc. 183,470,271
3,923,810 General Mills, Inc. 243,276,220
235,000 Heinz (H.J.) Co. 9,752,500
4,450,000 Sara Lee Corp. 186,900,000
355,000 Whitman Corp. 8,209,375
--------------
631,608,366
Forest Products (1.6%)
- ------------------------------------------------------------------------------------------------------------
1,130,180 Temple Inland, Inc. 62,724,990
7,448,100 Weyerhaeuser Co. 340,750,575
--------------
403,475,565
Insurance and Finance (17.4%)
- ------------------------------------------------------------------------------------------------------------
6,302,630 Ahmanson (H.F.) & Co. 240,287,769
6,449,500 American General Corp. 281,359,438
3,899,090 AON Corp. 259,289,485
5,547,840 Banc One Corp. 235,089,720
1,707,300 BankAmerica Corp. 199,540,688
1,123,145 BankBoston Corp. 81,708,799
3,059,749 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 248,987,075
3,127,100 Beneficial Corp. 200,134,400
1,532,750 CIGNA Corp. 230,487,281
1,374,320 Comerica, Inc. 80,397,720
431,035 CoreStates Financial Corp. 21,813,047
705,500 Crestar Financial Corp. 26,103,500
1,108,200 Federal National Mortgage Association 45,574,725
570,000 First of America Bank Corp. 37,905,000
700,000 First Tennessee National Corp. 30,362,500
6,001,800 Fleet Financial Group, Inc. 366,109,800
3,732,480 Great Western Financial Corp. 156,764,160
948,400 Huntington Bancshares, Inc. 27,147,950
4,286,610 Keycorp 223,439,546
645,900 Mellon Bank Corp. [UPSIDE DOWN DELTA] 53,690,438
550,000 Mercantile Bancorpation, Inc. 31,900,000
4,681,206 Morgan (J.P.) & Co., Inc. 476,897,861
710,000 National City Corp. 34,612,500
3,334,820 NationsBank Corp. 201,339,758
190,000 Norwest Corp. 9,476,250
8,615,630 PNC Bank Corp. 354,317,784
516,190 Salomon, Inc. 25,809,500
1,700,000 St. Paul Cos., Inc. 113,900,000
1,229,820 Summit Bancorp 57,186,630
700,000 Union Planters Corp. 31,237,500
4,300,000 USF&G Corp. 86,000,000
--------------
4,468,870,824
Medical Supplies and Devices (1.5%)
- ------------------------------------------------------------------------------------------------------------
7,810,880 Baxter International, Inc. 373,945,880
Metals and Mining (1.1%)
- ------------------------------------------------------------------------------------------------------------
6,089,082 Freeport-McMoRan Copper & Gold Co.,
Inc. Class A 170,494,296
3,551,734 Freeport-McMoRan Copper & Gold Co.,
Inc. Class B 103,444,253
--------------
273,938,549
Oil and Gas (10.0%)
- ------------------------------------------------------------------------------------------------------------
4,368,060 Amoco Corp. 365,279,018
714,740 Atlantic Richfield Co. 97,293,983
2,035,690 British Petroleum PLC ADR (United Kingdom) 280,161,836
7,055,320 Elf Aquitane ADR (France) 343,064,935
2,050,000 Enron Corp. 77,131,250
7,948,460 Exxon Corp. 450,081,548
1,993,390 Mobil Corp. 259,140,700
9,226,727 Occidental Petroleum Corp. 204,141,335
2,765,250 PanEnergy Corp. 122,362,313
1,729,900 Phillips Petroleum Co. 68,114,813
249,500 Royal Dutch Petroleum Co. PLC ADR
(Netherlands) 44,972,375
5,968,064 Total Corp. ADR (France) 248,420,664
240,000 YPF S.A. ADR (Argentina) 6,630,000
--------------
2,566,794,770
Packaging and Containers (1.0%)
- ------------------------------------------------------------------------------------------------------------
4,507,330 Crown Cork & Seal Co., Inc. 246,776,318
Pharmaceuticals (4.2%)
- ------------------------------------------------------------------------------------------------------------
3,884,250 American Home Products Corp. 257,331,563
3,645,820 Bristol-Myers Squibb Co. 238,801,210
14,941,020 Pharmacia & Upjohn, Inc. 442,627,718
1,350,060 Warner-Lambert Co. 132,305,880
--------------
1,071,066,371
Photography (1.5%)
- ------------------------------------------------------------------------------------------------------------
4,510,380 Eastman Kodak Co. 376,616,730
200,000 Polaroid Corp. 9,700,000
--------------
386,316,730
Publishing (0.5%)
- ------------------------------------------------------------------------------------------------------------
150,000 McGraw-Hill, Inc. 7,631,250
2,023,400 Times Mirror Co. Class A 111,792,850
--------------
119,424,100
Real Estate Investment Trust (REIT's) (0.8%)
- ------------------------------------------------------------------------------------------------------------
500,000 Avalon Properties, Inc. 13,187,500
1,839,812 Beacon Properties Corp. 56,804,196
603,800 Crescent Real Estate Equities Co. 15,849,750
700,000 Equity Residential Properties Trust 30,625,000
500,000 FelCor Suite Hotels, Inc. 17,937,500
336,000 LTC Properties, Inc. 5,628,000
600,000 Meditrust Corp. 21,900,000
750,000 Nationwide Health Properties, Inc. 15,000,000
352,200 Smith (Charles E.) Residential Realty, Inc. 9,553,425
425,000 Storage USA, Inc. 15,990,625
228,000 Tanger Factory Outlet Centers 5,700,000
--------------
208,175,996
Retail (5.5%)
- ------------------------------------------------------------------------------------------------------------
5,297,210 Dayton Hudson Corp. 238,374,450
18,840,680 K mart Corp. + 256,704,265
5,852,740 Lowe's Cos., Inc. 222,404,120
3,882,790 May Department Stores Co. 179,579,038
2,077,260 Penney (J.C.) Co., Inc. 99,189,165
4,740,470 Rite Aid Corp. 218,061,620
4,457,840 Sears, Roebuck & Co. 213,976,320
--------------
1,428,288,978
Transportation (3.3%)
- ------------------------------------------------------------------------------------------------------------
832,400 Burlington Northern Santa Fe Corp. 65,551,500
401,367 Conrail, Inc. 45,856,180
3,581,530 CSX Corp. 166,988,836
1,268,900 Delta Air Lines, Inc. 116,897,413
2,585,190 Norfolk Southern Corp. 232,343,951
3,884,400 Ryder System, Inc. 120,901,950
1,463,900 Union Pacific Corp. 93,323,625
--------------
841,863,455
Utilities (9.3%)
- ------------------------------------------------------------------------------------------------------------
1,877,290 American Telephone & Telegraph Co. 62,889,215
2,000,000 Baltimore Gas & Electric Co. 51,000,000
1,882,130 Bell Atlantic Corp. 127,514,308
2,975,730 BellSouth Corp. 132,419,985
2,480,000 Carolina Power & Light Co. 84,320,000
3,967,270 Central & South West Corp. 79,841,309
1,553,500 Cinergy Corp. 51,653,875
300,000 Edison International 6,300,000
5,533,120 GTE Corp. 253,831,880
2,553,700 Long Island Lighting Co. 58,415,888
2,900,000 Northeast Utilities Co. 23,925,000
3,305,888 NYNEX Corp. 171,079,704
2,100,000 Pacific Enterprises 64,312,500
3,140,000 Potomac Electric Power Co. 70,650,000
645,500 Public Service Co. of Colorado 25,013,125
7,878,174 SBC Communications, Inc. 437,238,657
9,287,060 Sprint Corp. 407,469,758
745,200 Union Electric Co. 26,547,750
7,615,000 US West, Inc. 267,476,875
75,000 Veba (Vereinigte Elektrizitaets Bergwerks)
AG (Germany) 3,868,841
--------------
2,405,768,670
--------------
Total Common Stocks (cost $19,801,186,386) $ 24,628,927,855
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (2.2%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (-- %)
- ------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$ 2,173 11 1/2s, with due dates from March 15, 2010
to January 15, 2013 $ 2,464
3,118 11s, January 15, 2010 3,482
251,588 9s, with due dates from December 15, 2004
to June 15, 2011 266,920
136,827 7 1/2s, with due dates from February 15, 2007
to April 15, 2007 137,281
413,199 7 1/4s, with due dates from February 15, 2005
to March 15, 2005 414,894
--------------
825,041
U.S. Treasury Obligations (2.2%)
- ------------------------------------------------------------------------------------------------------------
U.S. Treasury Bonds
100,000,000 8 1/8s, August 15, 2019 111,891,000
344,625,000 8s, November 15, 2021 382,158,109
67,495,000 6 1/4s, August 15, 2023 61,135,621
--------------
555,184,730
--------------
Total U.S. Government and Agency
Obligations (cost $553,637,604) $ 556,009,771
CONVERTIBLE PREFERRED STOCKS (0.2%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
450,000 Freeport-McMoRan Copper Co., Inc. $1.75 cv. pfd. $ 12,150,000
733,980 K mart Financing I $3.875 cv. pfd. 42,295,598
--------------
Total Convertible Preferred Stocks
(cost $48,857,257) $ 54,445,598
CORPORATE BONDS AND NOTES (0.1%) * (COST $24,521,875)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$19,000,000 Siemens Capital Corp. Co. Guaranty
8s, 2002 (Germany) $ 27,740,000
FOREIGN GOVERNMENT BONDS AND NOTES (-- %) * (cost $6,350,000)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 6,350,000 Italy (Government of) cv. notes 5s, 2001 $ 6,270,625
SHORT-TERM INVESTMENTS (1.5%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$25,000,000 Asset Securitization Cooperative Corp. effective yield
of 5.38%, May 5, 1997 $ 24,985,056
25,000,000 Bellsouth Telecommunications Inc. effective yield
of 5 1/2%, June 3, 1997 24,873,958
25,000,000 Falcon Asset Securitization Corp. effective yield
of 5.52%, May 15, 1997 24,946,333
50,000,000 Federal Home Loan Mortgage Corp. effective
yield of 5.41%, May 14, 1997 24,981,215
25,000,000 Federal Home Loan Mortgage Corp. effective
yield of 5.41%, May 6, 1997 49,902,320
30,000,000 Ford Motor Credit Co. effective yield of 5.56%,
June 17, 1997 29,782,233
30,000,000 General Electric Capital Corp. effective
yield of 5.31%, May 6, 1997 29,977,875
21,285,000 Metlife Funding Inc. effective yield of 5.27%,
May 7, 1997 21,266,305
15,000,000 National Rural Utilities Cooperative Finance
Corp. effective yield of 5.24%, May 2, 1997 14,997,817
26,000,000 Safeco Credit Co. Inc. effective yield of 5.37%,
May 15, 1997 25,945,703
30,000,000 Sears Roebuck Acceptance Corp. effective
yield of 5.26%, May 27, 1997 29,886,033
30,000,000 Sheffield Receivables Corp. effective yield
of 5.57%, June 9, 1997 29,818,975
12,000,000 USAA Capital Corp. effective yield of 5.24%,
May 8, 1997 11,987,773
37,934,000 Interest in $492,645,000 joint repurchase
agreement dated April 30, 1997 with
Morgan (J.P.) & Co., Inc. due May 1, 1997
with respect to various U.S. Treasury
obligations -- maturity value of $37,939,722
for an effective yield of 5.43% 37,939,722
--------------
Total Short-Term Investments
(cost $381,291,318) $ 381,291,318
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $20,815,844,440) *** $25,654,685,167
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $25,725,709,089.
*** The aggregate identified cost on a tax basis is $20,833,757,731,
resulting in gross unrealized appreciation and depreciation of
$5,357,132,363 and $536,204,927, respectively, or net unrealized
appreciation of $4,820,927,436.
+ Non-income-producing security.
[UPSIDE DOWN DELTA] This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from
registration under Rule 144A of the Securities Act of 1933. These
securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depository
Receipts representing ownership of foreign securities on deposit with a
domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30,1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $20,815,844,440) (Note 1) $25,654,685,167
- ---------------------------------------------------------------------------------------------------
Cash 9,517,300
- ---------------------------------------------------------------------------------------------------
Dividends and interest receivable 68,051,669
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 69,974,411
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 196,186,824
- ---------------------------------------------------------------------------------------------------
Total assets 25,998,415,371
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 208,265,319
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 17,692,877
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 25,555,802
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 5,725,206
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 144,287
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,512
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 11,628,699
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 3,687,580
- ---------------------------------------------------------------------------------------------------
Total liabilities 272,706,282
- ---------------------------------------------------------------------------------------------------
Net assets $25,725,709,089
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) 20,098,747,981
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 54,107,343
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments
(Note 1) 734,013,038
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 4,838,840,727
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $25,725,709,089
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($13,877,865,163 divided by 731,333,439 shares) $18.98
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $18.98)* $20.14
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($11,140,985,878 divided by 593,293,405 shares)** $18.78
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($226,896,267 divided by 12,009,421 shares) $18.89
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $18.89)* $19.58
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($479,961,781 divided by 25,260,242 shares) $19.00
- ---------------------------------------------------------------------------------------------------
* 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
Six months ended April 30,1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,972,844) $ 309,346,962
- --------------------------------------------------------------------------------------------------
Interest 40,687,873
- --------------------------------------------------------------------------------------------------
Total investment income 350,034,835
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 49,830,316
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 18,425,599
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 274,701
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 37,285
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 15,946,994
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 49,955,124
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 663,292
- --------------------------------------------------------------------------------------------------
Reports to shareholders 945,396
- --------------------------------------------------------------------------------------------------
Registration fees 1,897,559
- --------------------------------------------------------------------------------------------------
Auditing 67,451
- --------------------------------------------------------------------------------------------------
Legal 144,199
- --------------------------------------------------------------------------------------------------
Other 874,310
- --------------------------------------------------------------------------------------------------
Total expenses 139,062,226
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (4,384,340)
- --------------------------------------------------------------------------------------------------
Net expenses 134,677,886
- --------------------------------------------------------------------------------------------------
Net investment income 215,356,949
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 820,727,060
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 1,541,146,115
- --------------------------------------------------------------------------------------------------
Net gain on investments 2,361,873,175
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $2,577,230,124
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 215,356,949 $ 387,116,089
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 820,727,060 1,400,606,590
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation
of investments 1,541,146,115 1,626,421,833
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 2,577,230,124 3,414,144,512
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (154,516,335) (223,915,286)
- ----------------------------------------------------------------------------------------------------------------------
Class B (86,925,992) (112,039,069)
- ----------------------------------------------------------------------------------------------------------------------
Class M (1,788,256) (1,264,823)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (5,289,455) (6,598,623)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (780,732,081) (362,744,121)
- ----------------------------------------------------------------------------------------------------------------------
Class B (608,834,176) (240,133,705)
- ----------------------------------------------------------------------------------------------------------------------
Class M (9,832,902) (1,187,122)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (23,560,474) (8,902,432)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 4,247,594,389 4,951,758,539
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 5,153,344,842 7,409,117,870
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 20,572,364,247 13,163,246,377
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $54,107,343 and $87,270,432, respectively) 25,725,709,089 20,572,364,247
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.27 $15.77 $13.65 $14.26 $12.92 $12.82
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .19 .43 .46 (d) .44 .43 .48
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.99 3.19 2.50 (.08) 1.88 .65
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.18 3.62 2.96 .36 2.31 1.13
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.40) (.40) (.43) (.51) (.54)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.24) (.72) (.44) (.54) (.46) (.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.47) (1.12) (.84) (.97) (.97) (1.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.98 $18.27 $15.77 $13.65 $14.26 $12.92
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 12.38* 23.89 23.00 2.74 18.75 9.53
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,877,865 $11,403,813 $7,859,496 $6,009,174 $5,214,239 $3,517,199
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .43* .92 .89 .95 .93 1.07
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.07* 2.59 3.20 3.18 3.18 3.72
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.40* 41.26 58.40 48.76 64.02 66.63
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0504 $.0524
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995 and thereafter,
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 April 27, 1992+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.10 $15.63 $13.56 $14.18 $12.88 $12.69
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13 .30 .35(d) .35 .31(d) .18(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.95 3.17 2.46 (.09) 1.89 .26
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.08 3.47 2.81 .26 2.20 .44
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.28) (.30) (.34) (.44) (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.24) (.72) (.44) (.54) (.46) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.40) (1.00) (.74) (.88) (.90) (.25)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.78 $18.10 $15.63 $13.56 $14.18 $12.88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 11.94* 23.04 21.91 2.01 17.86 3.47*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,140,986 $8,692,163 $5,089,359 $3,318,858 $1,819,793 $288,121
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .81* 1.68 1.64 1.70 1.68 .97*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .69* 1.84 2.42 2.42 2.27 1.15*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.40* 41.26 58.40 48.76 64.02 66.63
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0504 $.0524
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995 and thereafter,
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended May 1, 1995+
operating performance (Unaudited) October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $18.21 $15.74 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .16 .35 .15(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.95 3.18 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.11 3.53 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.19) (.34) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.24) (.72) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.43) (1.06) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $18.89 $18.21 $15.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 12.02* 23.31 11.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $226,896 $132,453 $21,100
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .68* 1.44 .66*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .81* 2.02 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.40* 41.26 58.40
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0504 $.0524
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995 and thereafter,
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS Y
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 June 15, 1994+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $18.29 $15.78 $13.66 $13.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .22 .47 .49(d) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 1.98 3.20 2.50 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 2.20 3.67 2.99 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.25) (.44) (.43) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.24) (.72) (.44) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.49) (1.16) (.87) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $19.00 $18.29 $15.78 $13.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 12.50* 24.24 23.28 2.28*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $479,962 $343,935 $193,292 $27,632
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .31* .68 .64 .26*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.19* 2.83 3.14 1.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 18.40* 41.26 58.40 48.76
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0504 $.0524
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets for the period ended October 31, 1995 and thereafter,
includes amounts paid through brokerage service and expense offset arrangements. Prior period ratios
exclude these amounts (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or
after September 1, 1995.
(d) Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
</TABLE>
Notes to financial statements
April 30, 1997 (Unaudited)
Note 1
Significant accounting policies
The Putnam Fund for Growth and Income (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital growth and current
income by investing primarily in a portfolio of common stocks that offer the
potential for capital growth, current income or both.
The fund offers class A, class B, class 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 may be 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 higher than class A shares but lower than class B shares. Class Y
shares, which are sold at net asset value, are generally subject to the same
expenses as class A shares, class B and class M shares, but do not bear a
distribution fee. Class Y shares are sold to defined contribution plans that
invest at least $250 million in a combination of Putnam Funds and other
accounts managed by affiliates of Putnam Investment Management, Inc. ("Putnam
Management"), the fund's manager, a wholly-owned subsidiary of Putnam
Investments, Inc.
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
that 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 generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. 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 sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price. 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, and
other investments are stated at fair market value following procedures
approved by the Trustees. Market quotations are not considered to be readily
available for long-term corporate bonds and notes; such investments are stated
at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, or dealers which determine valuations for normal
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders.
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 and certain other accounts managed by Putnam Management.
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. 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 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, 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.
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 at
least annually. The amount and character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services, and other transactions
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 and 0.38% of any amount
thereafter.
The fund 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.
Custodial functions for the fund's assets are 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 six months ended April 30, 1997, fund expenses were reduced by
$4,384,340 under brokerage service and expense offset arrangements with PFTC.
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 arrangements in an income
producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $19,170 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
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 certain Putnam funds until distribution in accordance with the 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
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 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 six months ended April 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $6,127,268 and $168,991 from the sale
of class A and class M shares, respectively and $5,911,162 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 six months ended April 30, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $39,420 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended April 30, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $7,093,097,546 and $3,870,076,110, respectively. Purchases and
sales of U.S. government obligations aggregated $0 and $365,037,833,
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 April 30, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 127,559,103 2,377,820,799
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 48,130,826 868,096,790
- ------------------------------------------------------------
175,689,929 3,245,917,589
Shares
repurchased (68,385,915) (1,275,725,571)
- ------------------------------------------------------------
Net increase 107,304,014 1,970,192,018
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 174,995,766 2,992,497,428
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 32,806,678 538,127,028
- ------------------------------------------------------------
207,802,444 3,530,624,456
Shares
repurchased (82,235,085) (1,402,222,592)
- ------------------------------------------------------------
Net increase 125,567,359 2,128,401,864
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 111,307,576 2,060,814,681
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 36,375,609 649,148,334
- ------------------------------------------------------------
147,683,185 2,709,963,015
Shares
repurchased (34,627,027) (640,918,026)
- ------------------------------------------------------------
Net increase 113,056,158 2,069,044,989
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 180,596,591 3,061,568,355
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 20,249,530 328,605,353
- ------------------------------------------------------------
200,846,121 3,390,173,708
Shares
repurchased (46,154,659) (781,507,908)
- ------------------------------------------------------------
Net increase 154,691,462 2,608,665,800
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 5,038,022 94,011,079
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 614,935 11,055,131
- ------------------------------------------------------------
5,652,957 105,066,210
Shares
repurchased (918,364) (17,086,484)
- ------------------------------------------------------------
Net increase 4,734,593 87,979,726
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 6,625,588 113,736,760
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 141,706 2,345,665
- ------------------------------------------------------------
6,767,294 116,082,425
Shares
repurchased (833,232) (14,291,401)
- ------------------------------------------------------------
Net increase 5,934,062 101,791,024
- ------------------------------------------------------------
Six months ended
April 30, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 7,133,546 133,932,283
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,595,920 28,849,929
- ------------------------------------------------------------
8,729,466 162,782,212
Shares repurchased (2,271,791) (42,404,556)
- ------------------------------------------------------------
Net increase 6,457,675 120,377,656
- ------------------------------------------------------------
Year ended
October 31, 1996
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 9,693,165 167,559,028
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 941,889 15,501,055
- ------------------------------------------------------------
10,635,054 183,060,083
Shares
repurchased (4,080,903) (70,160,232)
- ------------------------------------------------------------
Net increase 6,554,151 112,899,851
- ------------------------------------------------------------
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
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Peter Carman
Vice President
Thomas V. Reilly
Vice President
David L. King
Vice President and Fund Manager
Anthony I. Kreisel
Vice President and Fund Manager
Hugh H. Mullin
Vice President and Fund Manager
Sheldon N. Simon
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
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. You can also learn more
at Putnam Investments' website: http://www.putnaminv.com.
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 principal amount invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
33887-002/881/427/511 6/97
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
The Putnam Fund For Growth and Income
Supplement to the Semiannual Report dated 4/30/97
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 defined contribution plans investing $250 million or
more in one or more of Putnam's funds or private accounts. 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,
and M shares, which are discussed more extensively in the semiannual report.
SEMIANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return: NAV
Six months ended 4/30/97 12.50%
One year ended 4/30/97 20.51
Life of class (since 6/15/94) 76.23
Annual average 21.74
- ----------------------------------------------------------------------------
Share value: NAV
10/31/96 $18.29
4/30/97 19.00
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.2520 $1.2360 $1.4880
- ----------------------------------------------------------------------------
Please note that past performance does not indicate future results.
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.
