The Putnam
Fund for
Growth and
Income
SEMIANNUAL REPORT
April 30, 1998
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "In managing The Putnam Fund for Growth and Income, our focus is on
long-term returns. We analyze companies that are currently undervalued to
understand the earnings they could generate three or five years down the
road, not in the next quarter.
-- David L. King, co-manager
* "All told, this offering is not only a good place to start
investing, but also a solid core for a broadly diversified portfolio."
-- Morningstar Mutual Funds, January 9, 1998
CONTENTS
4 Report from Putnam Management
8 Fund performance summary
11 Portfolio holdings
18 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The strategy of investing in companies undergoing constructive change that has
not been recognized by the market has served The Putnam Fund for Growth and
Income well over the years. It is a strategy that allowed your fund to weather
rather well the market volatility ignited by events in Asia in the past
several months.
Over time, Putnam Management believes many of the investments acquired during
this somewhat turbulent period will make their own positive contribution to
performance. Others may not, of course; past performance can never assure
future results.
Your fund's management remains in experienced hands. During the period,
Sheldon Simon and Hugh Mullin joined the team. Sheldon has been with Putnam
since 1984 and has 14 years of investment experience. Hugh came to Putnam in
1986 and has 13 years of investment experience.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
June 17, 1998
Report from the Fund Managers
David L. King
Hugh H. Mullin
Sheldon N. Simon
The Putnam Fund for Growth and Income's class A shares posted a solid 16.89%
return at net asset value (10.19% at public offering price) during the six
months ended April 30, 1998, the first half of its 1998 fiscal year. Although
this result seems to be a continuation of the market's upward trend that began
in 1995, it is important to note that this period included serious bouts of
volatility resulting from the Asian financial crisis and fears of slackening
profits for U.S. corporations. We believe that the fund's cautious strategy,
which favors less volatile, dividend-paying stocks, functioned well during the
period. While the fund's return lagged the 22.49% return of the S&P
500(registered trademark) Index, it is also true that the portfolio showed
resilience on days when many stocks trembled. For complete performance
information, including the returns of all share classes and over longer time
periods, please see the tables that begin on page 8.
* U.S. STOCKS SHAKE OFF WORRIES AND RESUME
THEIR CLIMB
At the beginning of the fiscal period in November 1997, financial analysts
were struggling to assess the damage to the U.S. economy and stock market that
would result from Asia's financial crisis. The persistence of the turmoil,
though, increased the difficulty of estimating its full impact. Finally, in
January, a sudden one-day 25% surge in smaller Asian markets provided
stability in the short run. Although investors knew that Asia's problems had
not ended, they nonetheless were encouraged by this rebound. Meanwhile,
reports showed that the U.S. economy continued to expand and most companies
remained profitable.
Economic growth did not, however, ignite inflation. As a result, long-term
interest rates stayed below 6% and helped to support stock prices. During this
period, the Dow Jones Industrial Average broke the 9000-point level for the
first time in history. As has been the case since early 1995, large, growing
multinational companies were the biggest beneficiaries of the market's
strength, but your fund's portfolio was rewarded as well. While companies in
the portfolio tend to grow at a relatively slow pace, they show qualities of
"cheapness and change," which we believe enable them to perform well over the
long term and which make them less volatile than faster-growing companies.
* VALUE STRATEGY SEIZES TIMELY OPPORTUNITIES
While market volatility is rarely a pleasant experience, it typically
generates opportunities to buy stocks of promising companies at unusual
discounts. During the past six months, several companies that met our criteria
for what we consider positive change became available at attractive prices.
Two examples were financial stocks, BankAmerica and Citicorp. Both of these
banks have made a strong comeback from the troubles that plagued the entire
industry in the early 1990s. Their executives now focus on generating more
earnings from customer accounts and expanding into new types of services.
Although the stock market has favored the industry in recent years, the Asian
crisis scared off many investors who thought that these banks would be hurt by
their international loans. As a result, we were able to add to the fund's
existing position in BankAmerica and to establish a new position in Citicorp.
Before the end of the fiscal period, both of these banks announced merger
plans: BankAmerica will be acquired by NationsBank, while Citicorp will join
with Travelers Group.
The market cheered these decisions and bid up the stock prices of the merging
banks. 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 OF TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and finance 21.7%
Oil and gas 10.4%
Utilities 8.3%
Pharmaceuticals 7.4%
Food and beverages 5.2%
Footnote reads:
* Based on net assets as of 4/30/98. Holdings will vary over time.
The oil industry also suffered because of its connections to Asia, although in
this case the industry-wide decline in stock prices made more sense -- it was
tied directly to falling demand for energy in Asia. In this sector, our
research helped us identify promising stocks as their prices fell to
opportunity levels, and we were ready to take advantage of the decline. Many
oil companies, like banks, underwent restructuring in the early 1990s; a
number are still cutting costs and repurchasing their own stock. These are the
kinds of positive changes we look for, and in early 1998, we added to several
of the fund's positions, such as Exxon and Royal Dutch Petroleum. We like the
fact that they are well-run businesses and we expect that the price of oil
will rise in the next two to three years, which is our usual time horizon for
projecting earnings.
* RETAILERS RING UP IMPRESSIVE GAINS
Domestic retail companies, especially traditional department stores, have
struggled in recent years because of weak growth in consumer income and
changes in shopping habits. Troubles such as these, of course, attracted our
attention. We selected several companies -- Dayton-Hudson, Federated
Department Stores, and Lowe's Cos. -- that seemed to be addressing the need to
change and revitalize their businesses. We added to several of these positions
early in the recent fiscal period, when concerns about an economic slowdown
hurt their prices. As it turned out, these stocks rallied in early 1998, when
the companies profited from cheaper clothing imports from Asia and strong
consumer spending fueled by low interest rates.
Late in 1997 our investment team found appealing value in Viacom, a media
company with several subsidiaries, including the Blockbuster Video chain.
Blockbuster, in particular, had been suffering from poor management, but a
company visit by our analysts gave us confidence in the corporation's plan to
turn around this division. We acquired Viacom stock during the recent
six-month period and have already seen it rally. In addition to improved
results from Blockbuster, Viacom's Paramount Studios subsidiary has pulled in
"Titanic" earnings thanks to the success of the film, which it produced
jointly with two other companies.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
General Electric Co.
Conglomerate
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Exxon Corp.
Oil and gas
IBM Corp.
Computer services and software
Xerox Corp.
Business equipment and services
Merck & Co., Inc.
Pharmaceuticals
American Telephone & Telegraph Co.
Utilities
American Home Products Corp.
Pharmaceuticals
Bristol-Myers Squibb Co.
Pharmaceuticals
E.I. du Pont de Nemours & Co., Ltd. (Du Pont)
Chemicals
These holdings represent 18.2% of the fund's net assets as of 4/30/98.
Portfolio holdings will vary over time.
* OUTLOOK REMAINS FAVORABLE FOR EQUITIES
Reports have continued to confirm solid economic growth and low inflation even
in this, the seventh year of the current expansion. Oddly enough, there has
been no sign of rising commodity prices, and so we have trimmed many of the
fund's positions in paper and chemical companies. Potential risks remain in
Asia, but we do not anticipate any significant changes in domestic growth or
interest rates for the remainder of the year, which bodes well for the stock
market. As always, though, we will seek to steer a smooth course to growth
with income by investing in attractively priced dividend-paying stocks of
large companies undergoing positive change.
The views expressed here are exclusively those of Putnam Management. They are
not meant as investment advice. Although the described holdings were viewed
favorably as of 4/30/98, 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 4/30/98
Class A Class B Class M
(inception date) (11/6/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
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6 months 16.89% 10.19% 16.45% 11.45% 16.59% 12.53%
- ------------------------------------------------------------------------------
1 year 29.96 22.47 29.03 24.03 29.36 24.80
- ------------------------------------------------------------------------------
5 years 148.18 133.85 139.09 137.09 142.00 133.57
Annual average 19.94 18.52 19.05 18.85 19.33 18.49
- ------------------------------------------------------------------------------
10 years 375.73 348.25 338.91 338.91 350.06 334.34
Annual average 16.88 16.19 15.94 15.94 16.23 15.82
- ------------------------------------------------------------------------------
Annual average
(life of fund) 14.08 13.91 12.98 12.98 13.27 13.17
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 4/30/98
Consumer
S&P 500 Index Price Index
- ------------------------------------------------------------------------------
6 months 22.49% 0.56%
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1 year 41.07 1.44
- ------------------------------------------------------------------------------
5 years 184.36 12.85
Annual average 23.25 2.45
- ------------------------------------------------------------------------------
10 years 466.16 38.77
Annual average 18.93 3.33
- ------------------------------------------------------------------------------
Annual average (life of fund) 12.46 4.41
- ------------------------------------------------------------------------------
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-, 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.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 4/30/98
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.230 $0.155 $0.181
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 1.984 1.984 1.984
- ------------------------------------------------------------------------------
Short-term 0.399 0.399 0.399
- ------------------------------------------------------------------------------
Total $2.613 $2.538 $2.564
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
10/31/97 $20.87 $22.14 $20.65 $20.77 $21.52
- ------------------------------------------------------------------------------
4/30/98 21.55 22.86 21.29 21.43 22.21
- ------------------------------------------------------------------------------
Current return
(end of period)
- ------------------------------------------------------------------------------
Current dividend rate1 2.13% 2.01% 1.48% 1.70% 1.64%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.21 1.14 0.46 0.70 0.68
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 3/31/98
(most recent calendar quarter)
Class A Class B Class M
(inception date) (11/6/57) (4/27/92) (5/1/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 11.34% 4.93% 10.92% 6.01% 11.09% 7.20%
- ------------------------------------------------------------------------------
1 year 34.13 26.43 33.13 28.13 33.52 28.87
- ------------------------------------------------------------------------------
5 years 146.51 132.38 137.59 135.59 140.35 131.87
Annual average 19.78 18.37 18.90 18.69 19.17 18.32
- ------------------------------------------------------------------------------
10 years 382.46 354.62 345.00 345.00 356.06 339.91
Annual average 17.04 16.35 16.10 16.10 16.39 15.97
- ------------------------------------------------------------------------------
Annual average
(life of fund) 14.11 13.94 13.01 13.01 13.30 13.20
- ------------------------------------------------------------------------------
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.
Securities indexes assume reinvestment of all distributions and interest
payments and do not take in account brokerage fees or taxes. Securities in
the fund do not match those in the indexes and performance of the fund
will differ. It is not possible to invest directly in an index.
Consumer Price Index (CPI) is a commonly used measure of inflation; it
does not represent an investment return.
Portfolio of investments owned
April 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (99.2%) (a)
NUMBER OF SHARES VALUE
Aerospace and Defense (1.6%)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
4,530,025 Boeing Co. $226,784,377
2,890,748 Lockheed Martin Corp. 321,957,059
300,000 Northrop Grumman Corp. 31,706,304
----------------
580,447,740
Automotive (2.8%)
- -------------------------------------------------------------------------------------------------------------
8,600,744 Chrysler Corp. 345,642,400
7,522,400 Ford Motor Co. 344,619,950
5,269,200 Goodyear Tire & Rubber Co. (The) 368,844,000
----------------
1,059,106,350
Basic Industrial Products (2.4%)
- -------------------------------------------------------------------------------------------------------------
2,200,000 Caterpillar, Inc. 125,262,500
3,800,160 Cooper Industries, Inc. 254,135,700
4,145,604 Deere (John) & Co. 242,258,734
2,506,203 Minnesota Mining & Manufacturing Co. 236,522,908
1,375,000 Owens-Illinois, Inc. (NON) 54,398,438
----------------
912,578,280
Broadcasting (0.3%)
- -------------------------------------------------------------------------------------------------------------
3,600,000 Comcast Corp. Special Class A 128,925,000
Business Equipment and Services (3.6%)
- -------------------------------------------------------------------------------------------------------------
5,755,276 Hewlett-Packard Co. 433,444,224
3,700,000 NCR Corp. (NON) 135,743,750
5,861,586 Xerox Corp. 665,290,011
1,925,000 Avery Dennison Corp. 100,821,875
----------------
1,335,299,860
Chemicals (2.2%)
- -------------------------------------------------------------------------------------------------------------
6,976,922 du Pont (E.I.) de Nemours & Co., Ltd. 508,007,133
3,221,878 Eastman Chemical Co. 221,504,113
2,454,860 Witco Chemical Corp. 97,273,828
----------------
826,785,074
Computer Services and Software (5.2%)
- -------------------------------------------------------------------------------------------------------------
10,842,200 3Com Corp. (NON) 371,345,350
7,099,403 Computer Associates Intl., Inc. 415,758,788
2,750,000 Electronic Data Systems Corp. 118,250,000
6,828,461 IBM Corp. 791,247,918
9,100,000 Seagate Technology, Inc. (NON) 242,856,250
----------------
1,939,458,306
Conglomerates (3.2%)
- -------------------------------------------------------------------------------------------------------------
11,331,950 General Electric Co. 964,632,244
1,300,000 Ogden Corp. 39,975,000
1,410,148 Tenneco, Inc. 60,724,498
2,292,939 TRW, Inc. 121,095,841
----------------
1,186,427,583
Consumer Non Durables (4.1%)
- -------------------------------------------------------------------------------------------------------------
4,163,068 Colgate-Palmolive Co. 373,375,161
6,208,290 Kimberly-Clark Corp. 315,070,718
12,254,380 Philip Morris Cos., Inc. 457,241,554
9,889,400 RJR Nabisco Holdings Corp. 275,048,938
11,780,100 Unilever PLC (United Kingdom) 125,465,604
----------------
1,546,201,975
Consumer Services (0.5%)
- -------------------------------------------------------------------------------------------------------------
3,150,000 McDonald's Corp. 194,906,250
Electronics and Electrical Equipment (2.7%)
- -------------------------------------------------------------------------------------------------------------
5,828,102 Emerson Electric Co. 370,812,990
2,300,000 Motorola, Inc. 127,937,500
1,600,000 Philips Electronics N.V. (Netherlands) 140,892,451
5,636,308 Texas Instruments, Inc. 361,075,981
----------------
1,000,718,922
Entertainment (1.1%)
- -------------------------------------------------------------------------------------------------------------
3,305,000 Time Warner, Inc. 259,442,500
2,784,129 Viacom, Inc. Class B (NON) 161,479,482
----------------
420,921,982
Environmental Control (0.4%)
- -------------------------------------------------------------------------------------------------------------
1,900,000 USA Waste Services, Inc. (NON) 93,218,750
1,982,200 Waste Management, Inc. 66,403,700
----------------
159,622,450
Food and Beverages (5.2%)
- -------------------------------------------------------------------------------------------------------------
6,722,865 Anheuser-Busch Cos., Inc. 307,991,253
4,125,000 ConAgra, Inc. 120,398,438
5,315,363 General Mills, Inc. 359,119,213
6,284,066 Heinz (H.J.) Co. 342,481,597
1,940,000 Nabisco Holdings Corp. Class A 92,756,250
2,948,804 PepsiCo, Inc. 117,030,659
6,050,420 Sara Lee Corp. 360,378,141
4,450,000 The Quaker Oats Co. 231,400,000
----------------
1,931,555,551
Health Care (1.7%)
- -------------------------------------------------------------------------------------------------------------
6,984,400 Tenet Healthcare Corp. (NON) 261,478,475
4,451,600 United Healthcare Corp. 312,724,900
875,000 WellPoint Health Networks, Inc. (NON) 63,109,375
----------------
637,312,750
Insurance and Finance (21.7%)
- -------------------------------------------------------------------------------------------------------------
3,453,225 Aetna Inc. 279,063,745
1,100,000 Ahmanson (H.F.) & Co. 83,875,000
2,210,000 Allstate Corp. 212,712,500
2,389,500 American Express Co. 243,729,000
5,917,374 American General Corp. 394,245,043
6,017,385 AON Corp. 388,121,333
1,514,366 Banc One Corp. 89,063,650
5,250,000 BankAmerica Corp. 446,250,000
3,349,530 BankBoston Corp. 361,539,894
3,093,111 Bankers Trust New York Corp. (CUS) 399,397,958
1,701,500 Chase Manhattan Corp. 235,764,094
1,818,335 CIGNA Corp. 376,281,699
2,834,600 Citicorp 426,607,300
925,000 Crestar Financial Corp. 55,326,563
6,316,390 Federal National Mortgage Association 378,193,851
4,093,545 First Chicago NBD Corp. 380,187,992
1,450,000 First Tennessee National Corp. 49,934,375
2,177,342 First Union Corp. 131,457,023
675,000 Firstar Corp. 25,185,938
2,450,600 Fleet Financial Group, Inc. 211,670,575
1,165,100 Hartford Financial Services Group 129,034,825
708,800 Huntington Bancshares, Inc. 25,206,700
10,283,000 Keycorp 408,106,563
1,450,000 Lehman Brothers Holding, Inc. 103,040,625
1,150,000 Mercantile Bancorpation, Inc. 63,681,250
1,500,000 Merrill Lynch & Co., Inc. 131,625,000
2,988,810 Morgan (J.P.) & Co., Inc. 392,281,313
1,322,800 National City Corp. 91,603,900
3,248,220 NationsBank Corp. 246,052,665
2,695,000 Norwest Corp. 106,957,813
7,167,094 PNC Bank Corp. 433,161,244
1,927,129 Summit Bancorp 96,597,341
278,700 SunTrust Banks, Inc. 22,696,631
1,925,000 Travelers Group Inc. 117,785,938
1,000,000 Union Planters Corp. 61,500,000
3,480,000 Washington Mutual, Inc. 243,817,500
828,685 Wells Fargo & Co. 305,370,423
----------------
8,147,127,264
Medical Supplies and Devices (1.3%)
- -------------------------------------------------------------------------------------------------------------
8,586,427 Baxter International, Inc. 476,010,047
Metals and Mining (0.9%)
- -------------------------------------------------------------------------------------------------------------
2,728,250 Aluminum Co. of America 211,439,375
3,750,000 Freeport-McMoRan Copper & Gold Co., Inc. Class A 66,796,875
2,500,000 Freeport-McMoRan Copper & Gold Co., Inc. Class B 47,031,250
----------------
325,267,500
Oil and Gas (10.4%)
- -------------------------------------------------------------------------------------------------------------
9,620,096 Amoco Corp. 425,689,248
2,954,455 Atlantic Richfield Co. 230,447,490
4,150,163 British Petroleum PLC ADR (United Kingdom) 392,190,404
7,050,240 Elf Aquitane ADR (France) 457,824,960
2,680,600 Enron Corp. 131,852,013
11,507,891 Exxon Corp. 839,356,800
2,500,000 Halliburton Co. 137,500,000
4,738,041 Mobil Corp. 374,305,239
4,223,400 Occidental Petroleum Corp. 124,326,338
4,905,000 Royal Dutch Petroleum Co. ADR (Netherlands) 277,439,063
4,800,000 Sonat, Inc. 213,000,000
2,600,000 Tosco Corp. 92,625,000
5,773,000 YPF S.A. ADR (Argentina) 201,333,375
----------------
3,897,889,930
Paper and Forest Products (2.6%)
- -------------------------------------------------------------------------------------------------------------
4,750,000 Fort James Corp. 235,718,750
4,610,300 International Paper Co. 240,600,031
1,800,000 Temple Inland, Inc. 116,212,500
6,458,581 Weyerhaeuser Co. 372,175,730
----------------
964,707,011
Pharmaceuticals (7.4%)
- -------------------------------------------------------------------------------------------------------------
5,530,737 American Home Products Corp. 515,049,883
4,821,591 Bristol-Myers Squibb Co. 510,485,947
2,245,660 Glaxo Wellcome PLC ADR (United Kingdom) 127,020,144
5,331,438 Merck & Co., Inc. 642,438,279
20,072,598 Pharmacia & Upjohn, Inc. 844,303,653
1,900,000 Smithkline Beecham PLC ADR (United Kingdom) 113,168,750
----------------
2,752,466,656
Photography (0.7%)
- -------------------------------------------------------------------------------------------------------------
3,847,948 Eastman Kodak Co. 277,773,746
Publishing (1.2%)
- -------------------------------------------------------------------------------------------------------------
3,100,000 McGraw-Hill, Inc. 240,056,250
3,619,950 Times Mirror Co. Class A 221,495,691
----------------
461,551,941
REIT's (Real Estate Investment Trust) (1.2%)
- -------------------------------------------------------------------------------------------------------------
1,315,300 Equity Office Properties Trust 37,403,844
3,970,000 Equity Residential Properties Trust 195,026,250
4,507,432 Starwood Lodging Trust 226,216,744
----------------
458,646,838
Retail (4.1%)
- -------------------------------------------------------------------------------------------------------------
2,882,586 Dayton Hudson Corp. 251,685,790
2,374,500 Federated Department Stores, Inc. (NON) 116,795,719
17,079,593 K mart Corp. (NON) 297,825,403
2,245,000 Lowe's Cos., Inc. 157,009,688
3,542,632 May Department Stores Co. 218,536,112
1,717,410 Penney (J.C.) Co., Inc. 122,043,448
13,105,777 Toys "R" Us, Inc. (NON) 361,227,979
----------------
1,525,124,139
Telecommunications (0.4%)
- -------------------------------------------------------------------------------------------------------------
4,400,000 US West Media Group (NON) 166,100,000
Transportation (2.0%)
- -------------------------------------------------------------------------------------------------------------
800,300 AMR Corp. (NON) 121,945,713
3,408,870 Burlington Northern Santa Fe Corp. 337,478,130
1,100,000 Delta Air Lines, Inc. 127,875,000
2,475,000 Norfolk Southern Corp. 82,757,813
2,300,000 Ryder System, Inc. 80,068,750
----------------
750,125,406
Utilities (8.3%)
- -------------------------------------------------------------------------------------------------------------
133,863 Ameren Corp. 5,304,321
8,781,990 American Telephone & Telegraph Co. 527,468,274
5,703,600 Ameritech Corp. 242,759,475
3,131,878 Bell Atlantic Corp. 293,026,335
1,650,000 BellSouth Corp. 105,909,375
1,092,800 Carolina Power & Light Co. 47,058,700
6,318,704 Duke Energy Corp. 365,694,994
2,950,000 GTE Corp. 172,390,625
1,900,000 Pacific Enterprises 73,981,250
272,100 Potomac Electric Power Co. 6,666,450
11,494,322 SBC Communications, Inc. 476,295,968
4,139,000 Southern Co. 109,683,500
5,483,238 Sprint Corp. 374,573,696
1,977,000 Texas Utilities Co. 79,080,000
4,668,185 US West Communications, Inc. 246,246,761
----------------
3,126,139,724
----------------
Total Common Stocks (cost $29,389,190,818) $37,189,198,275
CONVERTIBLE PREFERRED STOCKS (0.3%) (a)
NUMBER OF SHARES VALUE
- -------------------------------------------------------------------------------------------------------------
1,375,000 K mart Financing I $3.875 cum. cv. pfd. $90,406,250
200,000 Tosco Financing Trust $2.875 cv. pfd. 12,400,000
300,000 Tosco Financing Trust 144A $2.875 cv. pfd. 18,600,000
----------------
Total Convertible Preferred Stocks
(cost $108,742,361) $121,406,250
- -------------------------------------------------------------------------------------------------------------
CONVERTIBLE BONDS AND NOTES (0.1%) (a) (cost $38,160,500)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$38,500,000 Apple Computer, Inc. cv. sub. notes 6s, 2001 $43,360,625
U.S. GOVERNMENT AND AGENCY OBLIGATIONS (--%) (a)
PRINCIPAL AMOUNT VALUE
U.S. Government Agency Mortgage Pass-Through Certificates (--%)
- -------------------------------------------------------------------------------------------------------------
Government National Mortgage Association
$1,831 11 1/2s, with due dates from March 15, 2010 to
January 15, 2013 $2,094
2,297 11s, January 15, 2010 2,592
206,828 9s, with due dates from December 15, 2004 to
June 15, 2011 222,532
107,098 7 1/2s, with due dates from February 15, 2007 to
April 15, 2007 111,042
327,883 7 1/4s, with due dates from February 15, 2005 to
March 15, 2005 335,244
----------------
Total U.S. Government and Agency Obligations
(cost $622,216) $673,504
SHORT-TERM INVESTMENTS (0.2%) (a)
PRINCIPAL AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
$5,000,000 Asset Securitization Corp., effective yield of 5.52%,
June 3, 1998 $4,947,866
75,446,000 Interest in $500,000,000 joint repurchase agreement
dated April 30, 1998 with Lehman Brothers due
May 1, 1998 with respect to various U.S. Treasury
obligations -- maturity value of $75,457,547 for
an effective yield of 5.51% 75,457,547
----------------
Total Short-Term Investments (cost $80,405,413) $80,405,413
- -------------------------------------------------------------------------------------------------------------
Total Investments (cost $29,617,121,308) (b) $37,435,044,067
- -------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $37,483,877,807.
(b) The aggregate identified cost on a tax basis is $29,656,704,423, resulting in gross unrealized
appreciation and depreciation of $8,375,552,707 and $597,213,063, respectively, or net unrealized
appreciation of $7,778,339,644.
(NON) Non-income-producing security.
(CUS) This entity provides subcustodian services to the fund.
144A after the name of a security represents those exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of
foreign securities on deposit with a domestic custodian bank.
The fund had the following industry group concentrations greater than 10% at April 30, 1998 (as a
percentage of net assets):
Insurance and Finance 21.7%
Oil and Gas 10.4
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Forward Currency Contracts to Sell at April 30, 1998 (Unaudited)
Market Aggregate Face Delivery Unrealized
Value Value Date Depreciation
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
French Franc $74,609,431 $74,021,883 Aug 98 $(587,548)
- ------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
April 30, 1998 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $29,617,121,308) (Note 1) $37,435,044,067
- ---------------------------------------------------------------------------------------------------
Cash 2,328,091
- ---------------------------------------------------------------------------------------------------
Dividends, interest, and other receivables 60,402,831
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 72,285,293
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 232,228,501
- ---------------------------------------------------------------------------------------------------
Total assets 37,802,288,783
Liabilities
- ---------------------------------------------------------------------------------------------------
Distributions payable to shareholders 293,107
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 220,110,020
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 36,392,320
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 36,873,686
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 4,202,585
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 215,695
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 6,605
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 17,943,204
- ---------------------------------------------------------------------------------------------------
Payable for open forward currency contracts 587,548
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 1,786,206
- ---------------------------------------------------------------------------------------------------
Total liabilities 318,410,976
- ---------------------------------------------------------------------------------------------------
Net assets $37,483,877,807
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $27,940,286,641
- ---------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (156,720,201)
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investments and
foreign currency transactions (Note 1) 1,882,976,156
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 7,817,335,211
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $37,483,877,807
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($19,548,613,364 divided by 907,101,853 shares) $21.55
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $21.55)* $22.86
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($16,600,547,256 divided by 779,868,275 shares)** $21.29
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($436,777,623 divided by 20,381,427 shares) $21.43
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $21.43)* $22.21
- ---------------------------------------------------------------------------------------------------
Net asset value, offering price and redemption price per class Y share
($897,939,564 divided by 41,603,262 shares) $21.58
- ---------------------------------------------------------------------------------------------------
* On single retail sales of less than $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
Six months ended April 30, 1998 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $1,505,663) $329,203,500
- --------------------------------------------------------------------------------------------------
Interest 20,776,113
- --------------------------------------------------------------------------------------------------
Total investment income 349,979,613
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 70,239,346
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 29,089,829
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 243,656
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 39,103
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 22,385,496
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 74,610,550
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 1,463,003
- --------------------------------------------------------------------------------------------------
Reports to shareholders 379,907
- --------------------------------------------------------------------------------------------------
Registration fees 775,082
- --------------------------------------------------------------------------------------------------
Auditing 151,985
- --------------------------------------------------------------------------------------------------
Legal 110,641
- --------------------------------------------------------------------------------------------------
Postage 407,085
- --------------------------------------------------------------------------------------------------
Other 1,284,736
- --------------------------------------------------------------------------------------------------
Total expenses 201,180,419
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (5,546,313)
- --------------------------------------------------------------------------------------------------
Net expenses 195,634,106
- --------------------------------------------------------------------------------------------------
Net investment income 154,345,507
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 1,872,661,917
- --------------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,657,923)
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of assets and liabilities in
foreign currencies during the period 5,338,132
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 3,225,343,432
- --------------------------------------------------------------------------------------------------
Net gain on investments 5,101,685,558
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $5,256,031,065
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of changes in net assets
Six months ended Year ended
April 30 October 31
1998* 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $154,345,507 $435,625,033
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments and
foreign currency transactions 1,871,003,994 3,682,609,333
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments and
assets and liabilities in foreign currencies 3,230,681,564 1,288,959,035
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 5,256,031,065 5,407,193,401
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (194,098,708) (321,052,336)
- ----------------------------------------------------------------------------------------------------------------------
Class B (110,420,820) (179,373,282)
- ----------------------------------------------------------------------------------------------------------------------
Class M (3,333,480) (4,362,788)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (9,138,381) (11,027,748)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (1,874,744,187) (788,135,634)
- ----------------------------------------------------------------------------------------------------------------------
Class B (1,574,713,262) (614,613,992)
- ----------------------------------------------------------------------------------------------------------------------
Class M (40,620,385) (9,920,170)
- ----------------------------------------------------------------------------------------------------------------------
Class Y (80,225,429) (23,776,837)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 5,253,877,223 6,833,969,310
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 6,622,613,636 10,288,899,924
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 30,861,264,171 20,572,364,247
- ----------------------------------------------------------------------------------------------------------------------
End of period (including distributions in excess of
net investment income and undistributed
net investment income of $156,720,201
and $5,925,681, respectively) $37,483,877,807 $30,861,264,171
- ----------------------------------------------------------------------------------------------------------------------
* Unaudited
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS A
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $20.87 $18.27 $15.77 $13.65 $14.26 $12.92
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .13(d) .39(d) .43 .46(d) .44 .43
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.16 3.91 3.19 2.50 (.08) 1.88
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.29 4.30 3.62 2.96 .36 2.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.23) (.45) (.40) (.40) (.43) (.51)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.38) (1.25) (.72) (.44) (.54) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.61) (1.70) (1.12) (.84) (.97) (.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.55 $20.87 $18.27 $15.77 $13.65 $14.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.89* 24.95 23.89 23.00 2.74 18.75
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,548,613 $16,300,523 $11,403,813 $7,859,496 $6,009,174 $5,214,239
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .42* .86 .92 .89 .95 .93
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .61* 1.95 2.59 3.20 3.18 3.18
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.78* 63.88 41.26 58.40 48.76 64.02
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0505 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended
Per-share April 30
operating performance (Unaudited) Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $20.65 $18.10 $15.63 $13.56 $14.18 $12.88
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(d) .24(d) .30 .35(d) .35 .31(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.13 3.87 3.17 2.46 (.09) 1.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.18 4.11 3.47 2.81 .26 2.20
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.16) (.31) (.28) (.30) (.34) (.44)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.38) (1.25) (.72) (.44) (.54) (.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.54) (1.56) (1.00) (.74) (.88) (.90)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.29 $20.65 $18.10 $15.63 $13.56 $14.18
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.45* 24.03 23.04 21.91 2.01 17.86
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $16,600,547 $13,511,906 $8,692,163 $5,089,359 $3,318,858 $1,819,793
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .80* 1.61 1.68 1.64 1.70 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .24* 1.19 1.84 2.42 2.42 2.27
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.78* 63.88 41.26 58.40 48.76 64.02
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0505 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 Year ended May 1, 1995+
operating performance (Unaudited) October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $20.77 $18.21 $15.74 $14.24
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .08(d) .28(d) .35 .15(d)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.14 3.89 3.18 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.22 4.17 3.53 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.18) (.36) (.34) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.38) (1.25) (.72) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.56) (1.61) (1.06) (.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.43 $20.77 $18.21 $15.74
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 16.59* 24.29 23.31 11.88*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $436,778 $348,129 $132,453 $21,100
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .67* 1.36 1.44 .66*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .36* 1.39 2.02 1.12*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.78* 63.88 41.26 58.40
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0505 $.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
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share April 30 June 15, 1994+
operating performance (Unaudited) Year ended October 31 to October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $20.90 $18.29 $15.78 $13.66 $13.46
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .15(d) .44(d) .47 .49(d) .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments 3.17 3.92 3.20 2.50 .19
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 3.32 4.36 3.67 2.99 .31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.26) (.50) (.44) (.43) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (2.38) (1.25) (.72) (.44) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.64) (1.75) (1.16) (.87) (.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $21.58 $20.90 $18.29 $15.78 $13.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 17.00* 25.27 24.24 23.28 2.28*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $897,940 $700,707 $343,935 $193,292 $27,632
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .30* .61 .68 .64 .26*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .73* 2.20 2.83 3.14 1.17*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 33.78* 63.88 41.26 58.40 48.76
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0505 $.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
April 30, 1998 (Unaudited)
Note 1
Significant accounting policies
The Putnam Fund for Growth and Income (the "fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital growth and current
income by investing primarily in a portfolio of common stocks that offer the
potential for capital growth, current income or both.
The fund offers class A, class B, class M and class Y shares. Class A shares
are sold with a maximum front-end sales charge of 5.75%. Class B shares, which
convert to class A shares after approximately eight years, do not pay a
front-end sales charge but pay a higher ongoing distribution fee than class A
shares, and 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 Investment Management, Inc. ("Putnam
Management"), the fund's manager, a wholly-owned subsidiary of Putnam
Investments, Inc..
Expenses of the fund are borne pro-rata by the holders of each class of
shares, except that each class bears expenses unique to that class (including
the distribution fees applicable to such class). Each class votes as a class
only with respect to its own distribution plan or other matters on which a
class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if
that fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
The following is a summary of significant accounting policies consistently
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter the last reported bid price. Securities
quoted in foreign currencies are translated into U.S. dollars at the current
exchange rate. Short-term investments having remaining maturities of 60 days
or less are stated at amortized cost, which approximates market value, and
other investments are stated at fair market value following procedures
approved by the Trustees. Market quotations are not considered to be readily
available for long-term corporate bonds and notes; such investments are stated
at fair value on the basis of valuations furnished by a pricing service,
approved by the Trustees, or dealers which determine valuations for normal
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships
between securities that are generally recognized by institutional traders.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Management.
These balances may be invested in one or more repurchase agreements and/or
short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) Foreign currency translation The accounting records of the fund are
maintained in U.S. dollars. The market value of foreign securities, currency
holdings, 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 six months ended April 30, 1998, 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. Reclassifications are made to the
fund's capital accounts to reflect income and gains available for distribution
(or available capital loss carryovers) under income tax regulations.
Note 2
Management fee, administrative services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund. Such
fee is based on the following annual rates: 0.65% of the first $500 million of
average assets, 0.55% of the next $500 million, 0.50% of the next $500
million, 0.45% of the next $5 billion, 0.425% of the next $5 billion, 0.405%
of the next $5 billion, 0.39% of the next $5 billion, and 0.38% of 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.
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 six months ended April 30, 1998, fund expenses were reduced by
$5,546,313 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.
Each Trustee of the fund receives an annual Trustee fee, of which $20,360 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 six months ended April 30, 1998, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $5,513,150 and $136,703 from the sale
of class A and class M shares, respectively and received $7,728,314 in
contingent deferred sales charges from redemptions of class B shares. A
deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares. For the six months ended April 30, 1998, Putnam Mutual Funds Corp.,
acting as underwriter received $53,402 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended April 30, 1998, purchases and sales of investment
securities other than U.S. government obligations and short-term investments
aggregated $13,323,617,287 and $11,340,603,467, respectively. Purchases and
sales of U.S. government obligations aggregated $-- and $82,212, respectively.
In determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
Note 4
Capital shares
At April 30, 1998, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 108,402,287 $2,223,997,341
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 97,414,054 1,938,659,960
- ------------------------------------------------------------
205,816,341 4,162,657,301
Shares
repurchased (79,738,332) (1,646,526,403)
- ------------------------------------------------------------
Net increase 126,078,009 $2,516,130,898
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 90,147,931 $1,834,645,011
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 79,523,062 1,564,948,772
- ------------------------------------------------------------
169,670,993 3,399,593,783
Shares
repurchased (44,282,536) (901,638,697)
- ------------------------------------------------------------
Net increase 125,388,457 $2,497,955,086
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 3,906,595 $79,891,311
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 2,101,899 41,627,017
- ------------------------------------------------------------
6,008,494 121,518,328
Shares
repurchased (2,388,798) (48,769,445)
- ------------------------------------------------------------
Net increase 3,619,696 $72,748,883
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Six months ended
April 30, 1998
- ------------------------------------------------------------
Class Y Shares Amount
- ------------------------------------------------------------
Shares sold 9,247,123 $194,608,659
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 4,483,110 89,363,810
- ------------------------------------------------------------
13,730,233 283,972,469
Shares
repurchased (5,657,423) (116,930,113)
- ------------------------------------------------------------
Net increase 8,072,810 $167,042,356
- ------------------------------------------------------------
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
- ------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
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
Anthony I. Kreisel
Vice President
David L. King
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
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
- --------------------
SA022-42846 002/881/427/511 6/98
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ------------------------------------------------------------------------
The Putnam Fund for Growth and Income
Supplement to Report dated April 30, 1998
The following information has been prepared to provide class Y
shareholders with a performance overview specific to their holdings.
Class Y shares are offered exclusively to defined contribution plans
investing $250 million or more in one or more of Putnam's funds or
private accounts. Performance of class Y shares, which incur neither a
front-end load, distribution fee, nor contingent deferred sales charge,
will differ from performance of class A, B, and M shares, which are
discussed more extensively in the report.
RESULTS AT A GLANCE
- ------------------------------------------------------------------------
Total return
for periods ended 4/30/98: NAV
17.00%
1 year 30.29
Five years 150.64
Annual average 20.17
10 years 380.45
Annual average 16.99
Annual average, life of fund
(since class A inception, 11/06/57) 14.10
Share value: NAV
10/31/97 $20.90
4/30/98 $21.58
- ------------------------------------------------------------------------
Capital gains
Distributions: No. Income Short Long Total
2 0.255 0.399 1.984 2.638
- ------------------------------------------------------------------------
Please note that past performance does not indicate future results.
Investment return and principal value will fluctuate so your shares,
when redeemed, may be worth more or less than their original cost. See
full report for information on comparative benchmarks. If you have
questions, please consult your fund prospectus or call Putnam toll free
at 1-800-752-9894.
3408-002.edg Page 38 To Putnam
