The Putnam
Fund for
Growth and
Income
ANNUAL REPORT
October 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "[The] Putnam Fund for Growth and Income offers investors a solid
foundation on which to build. Those seeking a stable starting point
for their investments have probably not been disappointed here."
-- Morningstar Mutual Funds, August 29, 1997
* "The fund strives to take less risk than its competitors. Our
techniques -- buying out-of-favor stocks, searching for appealing
dividend yields, and avoiding high-priced securities -- are intended
to keep volatility in check while achieving competitive returns over
many years."
-- David L. King, co-manager
The Putnam Fund for Growth and Income
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
14 Portfolio holdings
21 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
As The Putnam Fund for Growth and Income closed the books on fiscal 1997, it
also concluded its 40th year of operation. During those four eventful decades,
your fund's managers have compiled an enviable record of outstanding
performance by steadfastly maintaining a focus on long-term results.
There are occasions, such as the present market environment, when issuing such
a reminder is particularly timely. Some shareholders, in reviewing the fund's
fiscal 1997 performance, might note that the results, while commendable in
absolute terms, fell somewhat below those of many of its peers. This
circumstance did not come as a surprise to the fund's managers. They
considered their investment decisions appropriate in positioning the portfolio
for the economic and market environment they see emerging in the months ahead.
In the following report, your fund's management team provides an in-depth
discussion of their strategy during the fiscal year just ended. Then they take
a look at prospects as the fund begins its fifth decade.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
December 17, 1997
Report from the Fund Managers
David L. King
Anthony I. Kreisel
Hugh H. Mullin
Sheldon N. Simon
Managing a successful growth and income fund is a bit like cultivating a
garden: although the fruits of one's labor do not appear immediately, it is
essential to maintain discipline and vigilance while focusing on the eventual
harvest.
Discipline and vigilance have characterized the management style of The Putnam
Fund for Growth and Income since its start, but we relied on them even more
than usual during the 12 months ended October 31, 1997. As stock market
averages surged to numerous new records, it would have been easy to be
distracted by the lure of some of the market leaders: large, growth-oriented
companies with significant international exposure. However, we stuck to your
fund's core strategy and maintained a low-risk profile, finishing the 1997
fiscal year with a total return of 24.95% for class A shares at net asset
value (17.79% at public offering price). While this performance is quite
rewarding in absolute terms, it does lag results posted by competing funds
with more growth-oriented holdings -- a reflection of our more disciplined,
value-oriented approach. For complete performance information, including
results for other share classes and comparative indexes, please see the
performance summary that begins on page 9.
* FUND RELIES ON ITS DISCIPLINE IN UNEVEN MARKET
In spite of the stock market's numerous new records during the fiscal year,
all the news was not positive. On several occasions, stock prices experienced
substantial declines. In December 1996, Federal Reserve Board Chairman Alan
Greenspan's public comments about the overall market levels caused a temporary
setback. Although the market started to rise again in January, investors'
concerns about values continued to keep prices vulnerable. In March, an
interest-rate increase resulted in a sharp selloff, and difficulties in
overseas markets struck domestic stocks in August and again in October.
Amid these ups and downs, we followed your fund's established strategy and
practiced disciplines. Our focus on cheaply priced stocks of companies with
the potential for positive change is intended to minimize exposure to stock
market volatility, since stocks tend to become cheap when investors learn
unfavorable news about a company. Because the price of such a stock has
already declined, it should be less vulnerable to further volatility than more
highly priced stocks. Many of the holdings also have a second source of
resilience in a volatile period: dividend yields. When investors worry about
the market, they often turn to dividend-paying stocks as a refuge.
The market's dips during the period gave us several opportunities to buy
stocks of companies that we liked. Buying on temporary weakness while focusing
on a multiyear investment horizon is a normal part of your fund's strategy.
While these techniques did little to boost returns during the period, we
believe they were valuable in helping to minimize share price fluctuations.
* "CHEAPNESS AND CHANGE" CONCEPT CONTINUES TO DELIVER
Fiscal 1997 included some textbook cases of how our focus on companies
characterized by cheapness and change can pay off as these stocks achieve
stronger performance. Two of the year's best performers are also among the
best-known turnaround stories of the information age: Xerox and IBM. Years ago
both of these companies stumbled. The rise of personal computers seemed to
overwhelm IBM, while Xerox slumped in competition with foreign manufacturers.
A few years ago, beset by financial difficulties and stock price declines,
both corporations underwent management changes and internal reorganizations
and then introduced new business strategies. Since then, the stocks of both
companies have risen steadily, reaching record levels during the past year.
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.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 18.8%
Oil and gas 8.9%
Utilities 8.3%
Pharmaceuticals 7.3%
Food and beverages 5.6%
Footnote reads:
*Based on net assets as of 10/31/97. Holdings will vary over time.
Our quest for companies characterized by cheapness and change can be applied
to many different industries, offering the portfolio managers a degree of
flexibility despite the fund's rigorous selection criteria. For example,
market volatility this year presented us with an unusual opportunity in the
software industry. Computer Associates International, a 20-year-old company
that specializes in software for mainframe and desktop computers, slumped in
the first calendar quarter of 1997 during a time of general weakness in the
technology industry. The company remained financially strong, however, and had
developed a new software product with huge appeal to business customers: It
allows computer network administrators to view the overall network and locate
the source of problems in individual computers. We took advantage of the price
decline to establish a position in the stock. Since then, the company has made
new licensing contracts and has grown through key acquisitions and
international partnerships. Its stock price began to recover and our position
benefited as a result.
* UNANTICIPATED MERGERS PROVIDE BOOST
Although we do not buy stocks in anticipation of corporate mergers or
acquisitions, the fund does sometimes benefit from takeovers because the
qualities of cheapness and change that we seek are also qualities that can
encourage companies in the same industry to consolidate. This year the fund
benefited from three such cases. In one of the numerous mergers in the
financial industry, Great Western Financial joined with another West Coast
bank, Washington Mutual. Great Western Financial, one of the fund's regional
bank holdings, had a combination of an attractive stock price and an improving
long-term outlook. As the California economy and real estate sector began to
recover, Seattle-based Washington Mutual targeted Great Western as a key to
expanding outside the Pacific Northwest. Washington Mutual is, in fact, doing
so well with its own agenda of positive change that we have decided to hold
part of the Washington Mutual stock the fund received as payment for the Great
Western shares.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Pharmacia & Upjohn, Inc.
Pharmaceuticals
IBM Corp.
Computer services and software
Exxon Corp.
Oil and gas
Hewlett-Packard Co.
Business equipment and services
Intel Corp.
Electronics and electrical equipment
Bristol-Myers Squibb Co.
Pharmaceuticals
Kimberly-Clark Corp.
Consumer nondurables
General Electric Co.
Conglomerates
Baxter International, Inc.
Medical supplies and devices
Philip Morris Cos., Inc.
Consumer nondurables
Footnote reads:
These holdings represent 18.6% of the fund's assets as of 10/31/97.
Portfolio holdings will vary over time.
Meanwhile, the improving health of commercial real estate prices nationwide
encouraged Chicago-based Equity Office Properties to make an offer for fund
holding Beacon Properties. One of the dominant real estate investment trusts
in Boston, Beacon Properties had enjoyed improving stock performance prior to
the purchase offer; the stock jumped even further on the news. In the third
example of a consolidation that benefited the fund, Lockheed Martin purchased
Northrop Grumman during the summer. Your fund owned positions in both
companies and both appreciated as the market expressed its approval for this
latest move to consolidate the defense industry.
* 40TH ANNIVERSARY WILL NOT CHANGE FUND'S ALL-WEATHER STYLE
We believe our focus on attractively priced companies that are poised for
positive change has been a major reason for the fund's strong absolute returns
during the past year. We will continue to rely on the techniques that have
served the fund so well for the past 40 years. While its current short-term
ranking is not as competitive as in previous years, it must be remembered that
the stocks that produced superlative returns this year -- companies with high
earnings growth rates, high price multiples, and unattractive dividend yields
- -- would seldom have a place in your fund's portfolio. Such characteristics
translate into what we consider an unacceptably high risk of volatility.
The numerous market declines during the period may be signaling a change in
market leadership, but it is too early to be certain. Historically a market
dominated by certain themes, such as the recent dominance of large,
multinational growth-oriented companies, must go through a sustained period of
volatility and decline to generate new market leaders and broader gains.
Should further volatility ensue, we are confident that your fund will remain a
sound refuge during stormy markets and a reliable vehicle for solid, long-term
results.
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 10/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
This section provides information about your fund's performance, which
should always be considered in light of its investment strategy. The
Putnam Fund for Growth and Income is designed for investors seeking
capital growth and current income.
TOTAL RETURN FOR PERIODS ENDED 10/31/97
Class A Class B Class M
(inception date) (11/06/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 24.95% 17.79% 24.03% 19.03% 24.29% 19.94%
- ------------------------------------------------------------------------------
5 years 132.32 118.93 123.69 121.69 126.52 118.53
Annual average 18.36 16.97 17.47 17.26 17.77 16.92
- ------------------------------------------------------------------------------
10 years 342.93 317.59 308.17 308.17 318.29 303.76
Annual average 16.05 15.37 15.10 15.10 15.38 14.98
- ------------------------------------------------------------------------------
Annual average
(life of fund) 13.82 13.65 12.73 12.73 13.01 12.91
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 10/31/97
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------------------------
1 year 32.10% 2.08%
- ------------------------------------------------------------------------------
5 years 147.06 13.96
Annual average 19.83 2.65
- ------------------------------------------------------------------------------
10 years 387.00 40.16
Annual average 17.15 3.43
- ------------------------------------------------------------------------------
Annual average (life of fund) 12.08 4.45
- ------------------------------------------------------------------------------
Returns for class A and class M shares reflect the current maximum initial
sales charges of 5.75% and 3.50%, respectively. Class B share returns for
the 1-, 5-, and 10-year and life-of-fund periods reflect the applicable
contingent deferred sales charge (CDSC), which is 5% in the first year,
declines to 1% in the sixth year, and is eliminated thereafter. Returns
shown for class B and class M shares for periods prior to their inception
are derived from the historical performance of class A shares, adjusted to
reflect both the initial sales charge or CDSC, if any, currently
applicable to each class and, in the case of class B and class M shares,
the higher operating expenses applicable to such shares. All returns
assume reinvestment of distributions at NAV and represent past
performance; they do not guarantee future results. Investment return and
principal value will fluctuate so that an investor's shares when redeemed
may be worth more or less than their original cost.
[GRAPHIC OMITTED: GROWTH OF A $10,000 INVESTMENT]
GROWTH OF A $10,000 INVESTMENT
Cumulative total return of a $10,000 investment since 10/31/87
S&P 500
Date/year Fund's class A shares at POP Index CPI
10/87 9425 10000 10000
10/88 11143 11491 10425
10/89 13278 14510 10893
10/90 12750 13428 11578
10/91 16410 17921 11916
10/92 17975 19703 12298
10/93 21346 22640 12636
10/94 21931 23512 12966
10/95 26977 29715 13330
10/96 33422 36864 13729
10/97 41759 48700 14016
Footnote reads:
Past performance is no assurance of future results. At the end of the same
time period, a $10,000 investment in the fund's class B shares would have been
valued at $40,817 and no contingent deferred sales charges would apply; a
$10,000 investment in the fund's class M shares would have been valued at
$41,829 at net asset value ($40,376 at public offering price). See first page
of performance section for performance calculation method.
PRICE AND DISTRIBUTION INFORMATION
12 months ended 10/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 4 4 4
- ------------------------------------------------------------------------------
Income $0.448 $0.310 $0.366
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long term 0.967 0.967 0.967
- ------------------------------------------------------------------------------
Short term 0.281 0.281 0.281
- ------------------------------------------------------------------------------
Total $1.696 $1.558 $1.614
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/96 $18.27 $19.38 $18.10 $18.21 $18.87
- ------------------------------------------------------------------------------
10/31/97 20.87 22.14 20.65 20.77 21.52
- ------------------------------------------------------------------------------
Current return (end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 2.20% 2.08% 1.49% 1.75% 1.69%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.64 1.54 0.88 1.10 1.07
- ------------------------------------------------------------------------------
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.
TOTAL RETURN FOR PERIODS ENDED 9/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/06/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
1 year 34.11% 26.40% 33.14% 28.14% 33.37% 28.68%
- ------------------------------------------------------------------------------
5 years 140.92 127.03 132.08 130.08 134.81 126.63
Annual average 19.23 17.82 18.34 18.13 18.62 17.78
- ------------------------------------------------------------------------------
10 years 274.41 252.86 244.78 244.78 253.54 241.23
Annual average 14.11 13.44 13.18 13.18 13.46 13.06
- ------------------------------------------------------------------------------
Annual average
(life of fund) 13.99 13.82 12.89 12.89 13.18 13.08
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. 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. See first page of
performance section for performance calculation method.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
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 Composite Stock Price 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 into account brokerage fees or taxes. Securities in the
fund do not match those in the index 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.
Report of independent accountants
To the Trustees and Shareholders of
The Putnam Fund for Growth and Income
In our opinion, the accompanying statement of assets and liabilities,
including the 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, 1997, 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 of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of investments owned at October 31, 1997 by correspondence with
the custodian and the application of alternative auditing procedures where
investments purchased were not yet received by the custodian, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 11, 1997
Portfolio of investments owned
October 31, 1997
<TABLE>
<CAPTION>
COMMON STOCKS (97.6%) *
NUMBER OF SHARES VALUE
Aerospace and Defense (2.0%)
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
6,563,515 Boeing Co. $ 314,228,281
2,464,380 Lockheed Martin Corp. 234,270,124
600,000 Northrop Grumman Corp. 65,550,000
----------------
614,048,405
Automotive (1.6%)
- ------------------------------------------------------------------------------------------------------------
3,146,860 Chrysler Corp. 110,926,815
1,611,005 Ford Motor Co. 70,380,781
1,088,595 General Motors Corp. 69,874,192
3,687,315 Goodyear Tire & Rubber Co. (The) 230,918,102
417,113 Meritor Automotive, Inc. 9,306,834
----------------
491,406,724
Basic Industrial Products (2.8%)
- ------------------------------------------------------------------------------------------------------------
782,100 Case Corp. 46,779,356
3,956,300 Cooper Industries, Inc. 206,222,138
5,554,717 Deere (John) & Co. 292,316,982
662,000 General Signal Corp. 26,562,750
3,129,515 Minnesota Mining & Manufacturing Co. 286,350,623
----------------
858,231,849
Broadcasting (0.3%)
- ------------------------------------------------------------------------------------------------------------
3,722,200 Comcast Corp. Special Class A 102,360,500
Building and Construction (0.2%)
- ------------------------------------------------------------------------------------------------------------
1,422,240 Masco Corp. 62,400,780
Business Equipment and Services (3.9%)
- ------------------------------------------------------------------------------------------------------------
9,702,240 Hewlett-Packard Co. 598,506,930
4,598,510 NCR Corp. + 139,392,334
5,843,210 Xerox Corp. 463,439,593
----------------
1,201,338,857
Chemicals (3.2%)
- ------------------------------------------------------------------------------------------------------------
2,324,600 Dow Chemical Co. 210,957,450
6,826,140 du Pont (E.I.) de Nemours & Co., Ltd. 388,236,713
3,117,660 Eastman Chemical Co. 185,890,478
1,015,200 PPG Industries, Inc. 57,485,700
3,158,100 Witco Chemical Corp. 137,377,350
----------------
979,947,691
Computer Services and Software (3.9%)
- ------------------------------------------------------------------------------------------------------------
2,274,100 3Com Corp. + 94,233,019
5,300,910 Computer Associates International, Inc. 395,249,102
6,448,835 IBM Corp. 632,388,882
3,265,030 Seagate Technology, Inc. + 88,563,939
----------------
1,210,434,942
Conglomerates (4.1%)
- ------------------------------------------------------------------------------------------------------------
359,335 Eaton Corp. 34,720,744
8,248,400 General Electric Co. 532,537,325
1,955,930 General Motors Corp. Class H 123,712,573
1,300,000 Ogden Corp. 32,825,000
3,835,440 Rockwell International Corp. 187,936,560
2,156,980 Tenneco, Inc. 96,929,289
4,548,515 TRW, Inc. 260,402,484
184,875 United Technologies Corp. 12,941,250
----------------
1,282,005,225
Consumer Non Durables (5.5%)
- ------------------------------------------------------------------------------------------------------------
937,720 Clorox Co. 65,640,400
3,806,890 Colgate-Palmolive Co. 246,496,128
177,430 Fortune Brands, Inc. 5,866,279
3,750,000 Gallaher Group PLC ADR (United Kingdom) 71,953,125
10,870,540 Kimberly-Clark Corp. 564,588,671
11,858,780 Philip Morris Cos., Inc. 469,904,158
5,545,400 RJR Nabisco Holdings Corp. 175,719,863
1,090,000 Tupperware Corp. 27,318,125
9,219,200 Unilever PLC (United Kingdom) 68,559,097
----------------
1,696,045,846
Electronics and Electrical Equipment (3.9%)
- ------------------------------------------------------------------------------------------------------------
6,098,840 Emerson Electric Co. 319,807,923
7,664,480 Intel Corp. 590,164,960
1,510,000 Micron Technology, Inc. + 40,486,875
3,670,105 Motorola, Inc. 226,628,984
1,215,000 Siebe PLC (United Kingdom) 23,300,790
----------------
1,200,389,532
Environmental Control (0.3%)
- ------------------------------------------------------------------------------------------------------------
4,000,000 Waste Management, Inc. 93,500,000
Food and Beverages (5.6%)
- ------------------------------------------------------------------------------------------------------------
6,042,865 Anheuser-Busch Cos., Inc. 241,336,921
6,586,965 General Mills, Inc. 434,739,690
3,946,800 Heinz (H.J.) Co. 183,279,525
66,000 Nestle S.A. (Switzerland) 92,807,356
9,374,725 PepsiCo, Inc. 345,107,064
1,375,000 The Quaker Oats Co. 65,828,125
6,763,920 Sara Lee Corp. 345,805,410
355,000 Whitman Corp. 9,318,750
----------------
1,718,222,841
Health Care (1.0%)
- ------------------------------------------------------------------------------------------------------------
912,400 Columbia/HCA Healthcare Corp. 25,775,300
5,485,000 Tenet Healthcare Corp. + 167,635,313
2,751,600 United Healthcare Corp. 127,433,475
----------------
320,844,088
Insurance and Finance (18.8%)
- ------------------------------------------------------------------------------------------------------------
2,923,500 Aetna Inc. 207,751,219
4,342,630 Ahmanson (H.F.) & Co. 256,215,170
6,460,900 American General Corp. 329,505,900
5,611,835 AON Corp. 302,688,350
6,172,740 Banc One Corp. 321,754,073
607,500 BankAmerica Corp. 43,436,250
1,920,130 BankBoston Corp. 155,650,538
2,014,005 Bankers Trust New York Corp. [UPSIDE DOWN DELTA] 237,652,590
930,000 Beneficial Corp. 71,319,375
1,363,000 Chase Manhattan Corp. 157,256,125
2,186,635 CIGNA Corp. 339,475,084
1,421,720 Comerica, Inc. 112,404,738
1,051,775 CoreStates Financial Corp. 76,516,631
980,000 Crestar Financial Corp. 46,366,250
5,434,000 Federal National Mortgage Association 263,209,375
3,034,445 First Chicago NBD Corp. 220,755,874
955,000 First of America Bank Corp. 53,241,250
825,000 First Tennessee National Corp. 47,540,625
6,857,245 First Union Corp. 336,433,583
5,325,770 Fleet Financial Group, Inc. 342,513,583
1,152,900 Hartford Financial Services Group 93,384,900
107,600 Household International, Inc. 12,185,700
592,500 Huntington Bancshares, Inc. 19,145,156
3,267,000 Keycorp 199,899,563
1,628,430 Mercantile Bancorpation, Inc. 79,080,632
2,825,033 Morgan (J.P.) & Co., Inc. 310,047,372
715,300 National City Corp. 42,739,175
3,698,220 NationsBank Corp. 221,430,923
1,600,000 Norwest Corp. 51,300,000
8,746,730 PNC Bank Corp. 415,469,675
1,994,730 Summit Bancorp 85,150,037
275,800 SunTrust Banks, Inc. 17,875,288
550,000 Union Planters Corp. 32,621,875
4,300,000 USF&G Corp. 87,075,000
341,400 Wachovia Corp. 25,711,688
2,563,732 Washington Mutual, Inc. 175,455,409
----------------
5,790,258,976
Medical Supplies and Devices (1.9%)
- ------------------------------------------------------------------------------------------------------------
1,412,800 Abbott Laboratories 86,622,300
10,861,110 Baxter International, Inc. 502,326,338
----------------
588,948,638
Metals and Mining (1.1%)
- ------------------------------------------------------------------------------------------------------------
1,626,900 Aluminum Co. of America 118,763,700
5,830,252 Freeport-McMoRan Copper & Gold Co., Inc. Class A 134,460,187
3,551,734 Freeport-McMoRan Copper & Gold Co., Inc. Class B 85,019,633
----------------
338,243,520
Oil and Gas (8.9%)
- ------------------------------------------------------------------------------------------------------------
4,354,460 Amoco Corp. 399,249,551
2,930,290 Atlantic Richfield Co. 241,199,496
2,656,642 British Petroleum PLC ADR (United Kingdom) 233,120,336
6,210,520 Elf Aquitane ADR (France) 383,499,610
2,157,135 Ente Nazionale Idrocarburi S.P.A. (ENI) ADR (Italy) 121,608,486
9,954,586 Exxon Corp. 611,584,877
3,519,480 Mobil Corp. 256,262,138
4,223,400 Occidental Petroleum Corp. 117,727,275
1,010,000 Royal Dutch Petroleum (Netherlands) 53,151,250
890,000 Tosco Corp. 29,370,000
2,738,500 Total Corp. ADR (France) 151,986,750
4,557,700 YPF S.A. ADR (Argentina) 145,846,400
----------------
2,744,606,169
Packaging and Containers (0.1%)
- ------------------------------------------------------------------------------------------------------------
800,850 Crown Cork & Seal Co., Inc. 36,088,303
Paper and Forest Products (2.4%)
- ------------------------------------------------------------------------------------------------------------
562,500 Champion International Corp. 31,042,969
4,398,600 International Paper Co. 197,937,000
2,130,180 Temple Inland, Inc. 122,219,078
8,194,090 Weyerhaeuser Co. 391,267,798
----------------
742,466,845
Pharmaceuticals (7.3%)
- ------------------------------------------------------------------------------------------------------------
6,052,080 American Home Products Corp. 448,610,430
6,517,555 Bristol-Myers Squibb Co. 571,915,451
5,016,100 Glaxo Wellcome PLC ADR (United Kingdom) 214,751,781
3,741,965 Merck & Co., Inc. 333,970,376
21,090,988 Pharmacia & Upjohn, Inc. 669,638,869
----------------
2,238,886,907
Photography (0.9%)
- ------------------------------------------------------------------------------------------------------------
4,315,080 Eastman Kodak Co. 258,365,415
500,000 Polaroid Corp. 22,468,750
----------------
280,834,165
Publishing (0.9%)
- ------------------------------------------------------------------------------------------------------------
1,850,000 McGraw-Hill, Inc. 120,943,750
2,683,450 Times Mirror Co. Class A 145,241,731
----------------
266,185,481
REIT's (Real Estate Investment Trust) (0.6%)
- ------------------------------------------------------------------------------------------------------------
500,000 Avalon Properties, Inc. 14,687,500
1,943,500 Beacon Properties Corp. 81,869,938
1,456,830 Equity Residential Properties Trust 73,569,915
336,000 LTC Properties, Inc. 6,804,000
375,600 Storage USA, Inc. 14,249,325
----------------
191,180,678
Retail (4.0%)
- ------------------------------------------------------------------------------------------------------------
2,830,810 Dayton Hudson Corp. 177,810,253
1,646,000 Federated Department Stores, Inc. + 72,424,000
17,661,080 K mart Corp. + 232,905,493
6,159,010 Lowe's Cos., Inc. 256,368,791
1,756,590 May Department Stores Co. 94,636,286
3,114,160 Penney (J.C.) Co., Inc. 182,762,265
6,195,920 Toys "R" Us, Inc. + 211,048,525
----------------
1,227,955,613
Transportation (4.1%)
- ------------------------------------------------------------------------------------------------------------
791,900 AMR Corp. + 92,206,856
2,499,970 Burlington Northern Santa Fe Corp. 237,497,150
2,605,600 CSX Corp. 142,493,750
1,332,400 Delta Air Lines, Inc. 134,239,300
8,297,770 Norfolk Southern Corp. 266,565,861
3,884,400 Ryder System, Inc. 135,954,000
4,389,260 Union Pacific Corp. 268,842,175
----------------
1,277,799,092
Utilities (8.3%)
- ------------------------------------------------------------------------------------------------------------
8,748,490 American Telephone & Telegraph Co. 428,129,229
406,300 Ameritech Corp. 26,409,500
1,325,400 Baltimore Gas & Electric Co. 36,365,663
2,781,878 Bell Atlantic Corp. 222,202,505
1,723,995 BellSouth Corp. 81,566,512
2,124,200 Carolina Power & Light Co. 75,940,150
855,000 Dominion Resources, Inc. 31,795,313
6,443,704 Duke Power Co. 310,908,718
572,800 New Century Energies, Inc. 23,914,400
2,000,000 Pacific Enterprises 65,375,000
1,500,000 Potomac Electric Power Co. 33,656,250
7,315,297 SBC Communications, Inc. 465,435,772
3,027,200 Southern Co. 69,436,400
8,562,140 Sprint Corp. 445,231,280
768,900 Texas Utilities Co. 27,584,288
560,000 Union Electric Co. 21,105,000
5,079,300 US West Communications Group 202,219,630
----------------
2,567,275,610
----------------
Total Common Stocks (cost $25,530,109,775) 30,121,907,277
CONVERTIBLE PREFERRED STOCKS (0.4%) *
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
386,270 Airtouch Communications, Inc. Ser. C, $2.125 cum. cv. pfd. $ 23,176,200
450,000 Freeport-McMoRan Copper Co., Inc. $1.75 cum. cv. pfd. 11,362,500
933,980 K mart Financing I $3.875 cum. cv. pfd. 53,178,486
200,000 Tosco Financing Trust $2.875 cv. pfd. 11,625,000
300,000 Tosco Financing Trust 144A $2.875 cv. pfd. 17,362,500
----------------
Total Convertible Preferred Stocks (cost $112,132,626) $ 116,704,686
CONVERTIBLE BONDS AND NOTES (0.1%) *(cost $38,160,500)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$38,500,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 $ 34,313,125
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (--%) *
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (--%)
- ------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$ 2,135 11 1/2s, with due dates from March 15, 2010 to
January 15, 2013 $ 2,469
2,558 11s, January 15, 2010 2,912
231,322 9s, with due dates from December 15, 2004 to
June 15, 2011 248,958
117,862 7 1/2s, with due dates from February 15, 2007 to
April 15, 2007 121,691
374,271 7 1/4s, with due dates from February 15, 2005 to
March 15, 2005 382,389
----------------
Total U.S. Government Agency Mortgage
Pass-Through Certificates (cost $701,279) $ 758,419
SHORT-TERM INVESTMENTS (1.4%) *
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
$ 30,000,000 Bank One Corp. effective yield of 5.51%, November 25, 1997 $ 29,889,800
30,000,000 Corporate Receivables Corp. effective yield of 5.52%,
November 3, 1997 29,990,800
25,000,000 Delaware Funding Corp. effective yield of 5.55%,
December 31, 1997 24,768,750
25,000,000 Deutsche Bank Financial Inc. effective yield of 5 1/2%,
November 17, 1997 24,938,889
50,000,000 Federal Home Loan Mortgage Corp. effective yield of 5.4%,
December 10, 1997 49,707,500
50,000,000 Federal National Mortgage Association effective yield of 5.42%,
December 5, 1997 49,744,056
50,000,000 Ford Motor Credit Co. effective yield of 5.49%,
December 17,1997 49,649,250
50,000,000 General Electric Capital Corp. effective yield of 5 1/2%,
November 19, 1997 49,862,500
29,294,000 Metlife Funding Inc. effective yield of 5 1/2%,
November 10, 1997 29,253,721
41,000,000 Morgan (J.P.) & Co., Inc. effective yield of 5 1/2%,
December 16, 1997 40,718,125
25,000,000 Sheffield Receivables Corp. effective yield of 5.54%,
November 7, 1997 24,976,917
25,206,000 Interest in $269,350,000 joint repurchase agreement dated
October 31,1997 with SBC Warburg due
November 3,1997 with respect to various U.S. Treasury
obligations -- maturity value of $25,217,868 for an
effective yield of 5.65% 25,209,956
---------------
Total Short-Term Investments (cost $428,710,264) $ 428,710,264
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $26,109,814,444) *** $30,702,393,771
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $30,861,264,171.
*** The aggregate identified cost on a tax basis is $26,149,397,559, resulting in gross unrealized
appreciation and depreciation of $5,445,608,489 and $892,612,277, respectively, or net unrealized
appreciation of $4,552,996,212.
+ 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.
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at October 31, 1997
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
French Franc 77,584,670 71,658,990 Feb 98 (5,925,680)
- ----------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
October 31, 1997
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $26,109,814,444) (Note 1) $30,702,393,771
- ---------------------------------------------------------------------------------------------------
Cash 12,144,058
- ---------------------------------------------------------------------------------------------------
Dividends, interest and other receivables 58,424,987
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 86,271,115
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 309,975,513
- ---------------------------------------------------------------------------------------------------
Total assets 31,169,209,444
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 211,873,515
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 33,974,469
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 32,492,958
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 3,970,358
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 204,870
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,409
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 15,740,940
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 5,925,680
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 3,756,074
- ---------------------------------------------------------------------------------------------------
Total liabilities 307,945,273
- ---------------------------------------------------------------------------------------------------
Net assets $30,861,264,171
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $22,686,409,418
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 5,925,681
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 3,582,275,425
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and assets and liabilities
in foreign currencies 4,586,653,647
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $30,861,264,171
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($16,300,522,915 divided by 781,023,844 shares) $20.87
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $20.87)* $22.14
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($13,511,905,622 divided by 654,479,818 shares)** $20.65
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($348,128,597 divided by 16,761,731 shares) $20.77
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $20.77)* $21.52
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($700,707,037 divided by 33,530,452 shares) $20.90
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less the $50,000. On sales of more than $50,000 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, 1997
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $4,773,477) $ 678,775,559
- --------------------------------------------------------------------------------------------------
Interest 67,532,808
- --------------------------------------------------------------------------------------------------
Total investment income 746,308,367
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 112,244,803
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 44,921,539
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 469,834
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 75,745
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 36,143,450
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 115,794,542
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,828,768
- --------------------------------------------------------------------------------------------------
Reports to shareholders 1,087,102
- --------------------------------------------------------------------------------------------------
Registration fees 2,684,474
- --------------------------------------------------------------------------------------------------
Auditing 225,420
- --------------------------------------------------------------------------------------------------
Legal 291,193
- --------------------------------------------------------------------------------------------------
Postage 1,440,968
- --------------------------------------------------------------------------------------------------
Other 1,454,081
- --------------------------------------------------------------------------------------------------
Total expenses 318,661,919
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (7,978,585)
- --------------------------------------------------------------------------------------------------
Net expenses 310,683,334
- --------------------------------------------------------------------------------------------------
Net investment income 435,625,033
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 3,682,609,741
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (408)
- --------------------------------------------------------------------------------------------------
Net unrealized depreciation of assets and liabilities in
foreign currencies during the year (5,925,680)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the year 1,294,884,715
- --------------------------------------------------------------------------------------------------
Net gain on investments 4,971,568,368
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,407,193,401
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Year ended October 31
--------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 435,625,033 $ 387,116,089
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 3,682,609,333 1,400,606,590
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 1,288,959,035 1,626,421,833
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,407,193,401 3,414,144,512
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (321,052,336) (223,915,286)
- ----------------------------------------------------------------------------------------------------------------------
Class B (179,373,282) (112,039,069)
- ----------------------------------------------------------------------------------------------------------------------
Class M (4,362,788) (1,264,823)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (11,027,748) (6,598,623)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (788,135,634) (362,744,121)
- ----------------------------------------------------------------------------------------------------------------------
Class B (614,613,992) (240,133,705)
- ----------------------------------------------------------------------------------------------------------------------
Class M (9,920,170) (1,187,122)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (23,776,837) (8,902,432)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 6,833,969,310 4,951,758,539
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 10,288,899,924 7,409,117,870
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of year 20,572,364,247 13,163,246,377
- ----------------------------------------------------------------------------------------------------------------------
End of year (including undistributed
net investment income of $5,925,681
and $87,270,432, respectively) $30,861,264,171 $20,572,364,247
- ----------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.27 $15.77 $13.65 $14.26 $12.92
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .39 (d) .43 .46 (d) .44 .43
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.91 3.19 2.50 (.08) 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.30 3.62 2.96 .36 2.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.45) (.40) (.40) (.43) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (.72) (.44) (.54) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.70) (1.12) (.84) (.97) (.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.87 $18.27 $15.77 $13.65 $14.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 24.95 23.89 23.00 2.74 18.75
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,300,523 $11,403,813 $7,859,496 $6,009,174 $5,214,239
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .86 .92 .89 .95 .93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.95 2.59 3.20 3.18 3.18
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 63.88 41.26 58.40 48.76 64.02
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0502 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share
operating performance Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $18.10 $15.63 $13.56 $14.18 $12.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .24 (d) .30 .35 (d) .35 .31 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.87 3.17 2.46 (.09) 1.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.11 3.47 2.81 .26 2.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.31) (.28) (.30) (.34) (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (.72) (.44) (.54) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.56) (1.00) (.74) (.88) (.90)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.65 $18.10 $15.63 $13.56 $14.18
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 24.03 23.04 21.91 2.01 17.86
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $13,511,906 $8,692,163 $5,089,359 $3,318,858 $1,819,793
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.61 1.68 1.64 1.70 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.19 1.84 2.42 2.42 2.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 63.88 41.26 58.40 48.76 64.02
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0502 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share Year ended May 1, 1995+
operating performance 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 .28 (d) .35 .15 (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.89 3.18 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.17 3.53 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.36) (.34) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (.72) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.61) (1.06) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.77 $18.21 $15.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 24.29 23.31 11.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $348,129 $132,453 $21,100
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) 1.36 1.44 .66*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 1.39 2.02 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 63.88 41.26 58.40
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0502 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
Per-share June 15, 1994+
operating performance 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 .44 (d) .47 .49 (d) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.92 3.20 2.50 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 4.36 3.67 2.99 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.50) (.44) (.43) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.25) (.72) (.44) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.75) (1.16) (.87) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $20.90 $18.29 $15.78 $13.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 25.27 24.24 23.28 2.28*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $700,707 $343,935 $193,292 $27,632
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .61 .68 .64 .26*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) 2.20 2.83 3.14 1.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 63.88 41.26 58.40 48.76
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0502 $.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
October 31, 1997
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 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 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 Management.
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with 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 Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc. 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
yield-to-maturity method.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings and other assets and liabilities are recorded in the books and
records of the fund after translation to U.S. dollars based on the exchange
rates on that day. The cost of each security is determined using historical
exchange rates. Income and withholding taxes are translated at prevailing
exchange rates when accrued or incurred. The fund does not isolate that
portion of realized or unrealized gains or losses resulting from changes in
the foreign exchange rate on investments from fluctuations arising from
changes in the market prices of the securities. Such gains and losses are
included with the net realized and unrealized gain or loss on investments. Net
realized gains and losses on foreign currency transactions represent net
exchange gains or losses on closed forward currency contracts, disposition of
foreign currencies and the difference between the amount of investment income
and foreign withholding taxes recorded on the fund's books and the U.S. dollar
equivalent amounts actually received or paid. Net unrealized appreciation and
depreciation of assets and liabilities in foreign currencies arise from
changes in the value of open forward currency contracts and assets and
liabilities other than investments at the period end, resulting from changes
in the exchange rate.
F) Forward currency contracts The fund may engage in forward currency
contracts, which are agreements between two parties to buy and sell currencies
at a set price on a future date, to protect against a decline in value
relative to the U.S. dollar of the currencies in which its portfolio
securities are denominated or quoted (or an increase in the value of a
currency in which securities a fund intends to buy are denominated, when a
fund holds cash reserves and short-term investments). The U.S. dollar value of
forward currency contracts is determined using current forward currency
exchange rates supplied by a quotation service. The market value of the
contract will fluctuate with changes in currency exchange rates. The contract
is "marked to market" daily and the change in market value is recorded as an
unrealized gain or loss. When the contract is closed, the fund records a
realized gain or loss equal to the difference between the value of the
contract at the time it was opened and the value at the time it was closed.
The fund could be exposed to risk if the value of the currency changes
unfavorably, if the counterparties to the contracts are unable to meet the
terms of their contracts or if the fund is unable to enter into a closing
position.
G) Line of credit The fund has entered into a committed line of credit with
certain banks. This line of credit agreement includes restrictions that the
fund maintain an asset coverage ratio of at least 300% and borrowings must not
exceed prospectus limitations. For the year ended October 31, 1997, the fund
had no borrowings against the line of credit.
H) Federal taxes It is the policy of the fund to distribute all of its taxable
income within the prescribed time and otherwise comply with the provisions of
the Internal Revenue Code applicable to regulated investment companies. It is
also the intention of the fund to distribute an amount sufficient to avoid
imposition of any excise tax under Section 4982 of the Internal Revenue Code
of 1986, as amended. Therefore, no provision has been made for federal taxes
on income, capital gains or unrealized appreciation on securities held nor for
excise tax on income and capital gains.
I) 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. These differences include temporary
and permanent differences of losses on wash sales transactions, unrealized
gains and losses on forward foreign currency contracts, market discount and
non-taxable dividends. 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, 1997, the fund reclassified $1,153,630 to decrease undistributed
net investment income and $1,286,516 to increase paid-in-capital, with a
decrease to accumulated net realized gain on investments and foreign currency
transactions of $132,886. The calculation of net investment income per share
in the financial highlights table excludes these adjustments.
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 assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405%
of the next $5 billion, 0.39% of the next $5 billion, 0.38% of the next $5
billion, 0.37% of the next $5 billion, 0.36% of the next $5 billion, 0.35% of
the next $5 billion and 0.34% thereafter. Prior to July 1, 1997, any amount
over $21.5 billion was based on 0.38%.
The fund reimburses Putnam Management an allocated amount for the compensation
and related expenses of certain officers of the fund and their staff who
provide administrative services to the fund. The aggregate amount of all such
reimbursements is determined annually by the Trustees.
Custodial functions for the fund's assets are provided by Putnam Fiduciary
Trust Company (PFTC), a subsidiary of Putnam Investments, Inc. Investor
servicing agent functions are provided by Putnam Investor Services, a division
of PFTC.
For the year ended October 31, 1997, fund expenses were reduced by $7,978,585
under expense offset arrangements 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 arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the funds receive an annual Trustees fee of which $18,416 has been
allocated to the fund 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 has adopted a Trustee Fee Deferral Plan (the "Deferral Plan") which
allows the Trustees to defer the receipt of all or a portion of Trustees Fees
payable on or after July 1, 1995. The deferred fees remain in the fund and are
invested in certain Putnam funds until distribution in accordance with the
Deferral Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
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 currently limit payment by the fund to 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $11,709,867 and $349,751 from the sale
of class A and class M shares, respectively and $13,041,781 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, 1997, Putnam Mutual Funds Corp., acting as
underwriter received $133,220 on class A redemptions.
Note 3
Purchase and sales of securities
During the year ended October 31, 1997, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $21,866,284,936 and $15,715,958,934, respectively. Purchases and
sales of U.S. government obligations aggregated $ -- and $911,431,455,
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, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Year ended
October 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 246,322,319 $4,867,849,703
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 55,800,874 1,027,207,252
- ------------------------------------------------------------
302,123,193 5,895,056,955
Shares
repurchased (145,128,774) (2,890,542,492)
- ------------------------------------------------------------
Net increase 156,994,419 $3,004,514,463
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 203,539,064 $3,976,856,440
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 40,773,177 739,428,187
- ------------------------------------------------------------
244,312,241 4,716,284,627
Shares
repurchased (70,069,670) (1,380,468,994)
- ------------------------------------------------------------
Net increase 174,242,571 $3,335,815,633
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 11,324,973 $224,938,156
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 735,803 13,555,890
- ------------------------------------------------------------
12,060,776 238,494,046
Shares
repurchased (2,573,873) (51,900,150)
- ------------------------------------------------------------
Net increase 9,486,903 $186,593,896
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Year ended
October 31, 1997
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 23,896,961 $497,150,115
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,884,261 34,804,585
- ------------------------------------------------------------
25,781,222 531,954,700
Shares
repurchased (11,053,337) (224,909,382)
- ------------------------------------------------------------
Net increase 14,727,885 $307,045,318
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Federal tax information
(Unaudited)
Pursuant to Section 852 of the Internal Revenue Code, as amended, the
Fund hereby designates $4,080,278,073 as capital gain dividends for
its taxable year ended October 31, 1997.
The fund has designated 58.20% of the distributions from net
investment income as qualifying for the dividends received deduction
for corporations.
The Form 1099 you receive in January 1998 will show the tax status
of all distributions paid to your account in calendar 1997.
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
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
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
Ian C. Ferguson
Vice President
Brett C. Browchuk
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 the principal amount
invested.
[LOGO OMITTED]
PUTNAM INVESTMENTS
The Putnam Funds
One Post Office Square
Boston, Massachusetts 02109
- --------------------
Bulk Rate
U.S. Postage
PAID
Putnam
Investments
- --------------------
36857-002/881/427/511 12/97
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------------
The Putnam Fund for Growth and Income
Supplement to Annual Report dated October 31, 1997
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
and B shares, which are discussed more extensively in the annual report.
FISCAL 1997 ANNUAL RESULTS AT A GLANCE
- ------------------------------------------------------------------------------
10/31/96 to 10/31/97
Annual fiscal period 25.27%
Five years 134.40
Annual average 18.57
Ten years 346.91
Annual average 16.15
Life of class (since 11/6/57)
Annual average 13.85
- ------------------------------------------------------------------------------
Share value NAV
10/31/96 $18.29
10/31/97 $20.90
- ------------------------------------------------------------------------------
Distributions No. Income Capital gains Total
Short Long
10/31/96 to 10/31/97 4 $0.507 $0.269 $0.967 $1.743
- ------------------------------------------------------------------------------
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 Annual 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.
