Putnam
Growth and
Income
Fund II
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-99
[LOGO: BOSTON * LONDON * TOKYO]
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
[copyright] Karsh, Ottawa
Dear Shareholder:
The dedication of Putnam Growth and Income Fund II's management team to
the fund's investment style assumed a brighter glow toward the midpoint of
fiscal 1999. In April and May, the type of value stocks in which the fund
invests took a positive turn with a favorable effect on performance during
the semiannual period.
The shift was a long time in coming. As Fund Manager Anthony Kreisel
explains in the following report, prices of these stocks had lagged those
of growth stocks since early 1997. A management team less committed to
style consistency might have yielded to the temptation to switch to the
better-performing stocks in hopes of capturing short-term gains.
Experience has shown us, however, that over the long haul such maneuvers
often prove to be illusory. While one can never count past performance as
a guarantee of future results, the young fund's record of solid growth to
date tends to confirm the efficacy of Putnam's long-standing investment
discipline. Tony provides greater detail of the fund's performance during
the six months ended May 31, 1999, and then offers his outlook for the
fiscal year's second half.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 21, 1999
Report from the Fund Manager
Anthony I. Kreisel
In the first six months of Putnam Growth and Income Fund II's 1999 fiscal
year, we believe our investment process and patience were amply rewarded
with higher-than-average returns. Although significant market volatility
persisted in this period, value stocks' return to favor in April and May
resulted in steady gains for the fund. We had been confident that these
stocks would once again have their day in the sun, but that day was
delayed for many months as extreme thinking drove the market. Unreasonable
fear of a global economic downturn combined with unrealistic assumptions
for growth stocks kept investors focused toward growth and away from
value.
These perceptions began to shift in early 1999 and the consequence was a
powerful market rotation into stocks that can thrive in an expanding
economy as well as solid returns for the six months ended May 31, 1999.
Total return for 6 months ended 5/31/99
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
- ----------------------------------------------------------------------------
11.70% 6.70% 11.24% 6.24% 11.32% 10.32% 11.41% 7.55%
- ----------------------------------------------------------------------------
Past performance is no indication of future results. Performance
information for longer periods begins on page 6.
* FUND WELL POSITIONED FOR SHIFTING MARKET TRENDS
During the past six months, large-company stocks again rose to record
prices while experiencing considerable volatility and major differences in
sector performances. The Dow Jones Industrial Average closed above 11,000
for the first time in April. Your fund benefited from the general strength
of large companies and from several sector trends. Initially, in December
and January, the fund's large weighting in technology stocks contributed
to performance. We had built this stake during a mid 1998 downturn in
earnings for several hardware companies, such as Sun Microsystems. We sold
many of these holdings at a profit in January before the sector's slump in
February.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance
and finance 21.9%
Utilities 12.4%
Oil and gas 11.0%
Pharmaceuticals 5.1%
Food and
beverages 4.7%
Footnote reads:
*Based on net assets as of 5/31/99. Holdings will vary over time.
Our handling of this opportunity -- investing in established companies
when prices were weak and then selling the stocks as they appreciated --
exemplifies the fund's strategy. As you know from our previous reports,
the fund's management team strives to identify established companies that
are priced below their long-term worth and are experiencing positive
internal changes. Stocks that offer qualities of both "cheapness and
change," in our view, are well positioned to perform competitively over
the long term with less risk than most other stocks.
"With signs of a turnaround in the global economy, the pressures that have
driven down prices around the world are easing."
- -- Business Week, May 31, 1999
In addition to its strong boost from technology stocks, the fund also
reaped large gains from financial stocks added to the portfolio in the
wake of the Russian debt crisis last summer. Banks such as Chase Manhattan
and J.P. Morgan, which were considered to have dangerous overseas
exposure, lost nearly half their value in the downdraft. Our research
determined there was little threat to the long-term profits of these
companies, and since we were able to purchase them at severely discounted
prices, the fund benefited from their recovery during the semiannual
period. Brokers Merrill Lynch and Lehman Brothers also performed well, as
did Citigroup. Although 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.
* STRONG FUNDAMENTALS SEEN FOR TRADITIONAL VALUE SECTORS
After months of dormancy, the energy sector began to perk up in February.
The price of oil rose from $11 and peaked near $18 in April, a harbinger
of the subsequent rotation into value stocks. Higher oil prices translate
into higher earnings for oil companies. Examples of fund holdings that are
benefiting include Exxon, Chevron, and Conoco.
"New technologies can cut costs of established companies in traditional
industries. Putnam Growth and Income Fund II seizes these opportunities. The
fund owns many large, dividend-paying companies achieving greater productivity
thanks to management efforts to introduce new information technology."
- -- Anthony I. Kreisel, manager, Putnam Growth and Income Fund II
The rally in energy stocks spread to the basic materials sector in April
thanks to recovering demand in Asia, which has been in recession since
1997. Companies in the basic materials sector provide the primary supplies
for industrial expansion, including fuel, chemicals, paper and forest
products, and steel and other metals. Examples of fund holdings in this
sector that performed well over the period include Alcoa, Dow Chemical,
and Boise Cascade. We have a bullish outlook for these industries because
production capacity has been reduced in the past few years and many
companies have taken advantage of new computer technologies to achieve
more effective inventory management. No new paper factories have been
built since 1997 and it would take at least two years to get any new
factories up and running. Thus there is no possibility of a supply
increase while demand worldwide is poised to grow. We believe this
scenario will give paper companies greater pricing power and as a result
stronger earnings.
* MERGERS RESHAPING INDUSTRY LANDSCAPE
Merger and acquisition activity in the stock market continues at its
record-setting pace and your fund continues to be one of the beneficiaries
of this trend. In the long run, mergers can be helpful by consolidating an
industry that is suffering from excess production capacity and low prices.
The possibility of industry consolidation is one type of positive change
that we take into account when we are analyzing stocks.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
IBM Corp.
Computer services and software
Bank One Corp.
Insurance and finance
Bank of America Corp.
Insurance and finance
American Telephone & Telegraph Co.
Utilities
Exxon Corp.
Oil and gas
CIGNA Corp.
Insurance and finance
SBC Communications, Inc.
Utilities
Boise Cascade Corp.
Forest products
Citigroup, Inc.
Insurance and finance
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Footnote reads:
These holdings represent 15.4% of the fund's net assets as of 5/31/99.
Portfolio holdings will vary over time.
Two sectors that have experienced some of the largest mergers recently are
financials and energy. In both sectors, competition has kept profit
margins fairly tight, while new technologies have made it more profitable
to operate large-scale enterprises. Two holdings -- Fleet Financial Group
and BankBoston -- have decided to merge to form FleetBoston, which will be
positioned to dominate retail banking in New England. Another holding,
Mercantile Bancorporation of St. Louis, agreed to be acquired at a 29%
premium by Firstar Corp. of Milwaukee. In the energy sector, two fund
holdings, Exxon and Mobil, agreed in December 1998 to join in what is by
some measures the largest industrial merger in history.
AT&T, one of the fund's largest holdings, has implemented a bold
acquisitions strategy under Chief Executive Officer Michael Armstrong. As
we explained in the last annual report, AT&T plans to dominate the
distribution of Internet services by gaining access to households through
cable companies. After acquiring Tele-Communications, Inc. and Teleport
Communications in 1998, AT&T announced the acquisition of MediaOne Group,
giving AT&T the ability to reach 60% to 65% of U.S. households through
cable connections. It has also launched new alliances with Microsoft and
Comcast. Since Armstrong took over, AT&T has undertaken vast positive
changes and now can offer voice, data, and video services in both local
and long distance markets, while in our view the stock has remained
undervalued.
* STRONG CASE FOR CONTINUED ECONOMIC EXPANSION
Accelerating economic growth in the United States and abroad has
strengthened many value sectors. In the second half of 1999, we anticipate
a continued improvement in economic growth and pricing power for many of
the fund's holdings, especially those in economically sensitive sectors
such as energy, basic materials, and industrial companies. Although a
recent rise in long-term interest rates might undercut the stock market's
advance in the short term, long-term conditions remain favorable for
equities. Corporate profits in the first quarter were generally better
than expected. We believe the factors now fueling expansion -- such as new
technologies, expanded international trade, better public fiscal health,
and rising worker productivity -- can sustain noninflationary growth for
the foreseeable future.
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 5/31/99, 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. Putnam Growth and
Income Fund II is designed for investors seeking primarily capital growth but
also current income potential through common stocks.
TOTAL RETURN FOR PERIODS ENDED 5/31/99
Class A Class B Class C Class M
(inception dates) (1/5/95) (1/5/95) (2/2/99) (1/5/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 11.70% 6.70% 11.24% 6.24% 11.32% 10.32% 11.41% 7.55%
- ------------------------------------------------------------------------------
1 year 13.21 5.31 12.25 7.25 12.42 11.42 12.54 8.62
- ------------------------------------------------------------------------------
Life of fund 147.38 133.17 139.09 137.09 139.44 139.44 141.91 133.43
Annual average 22.86 21.22 21.91 21.68 21.95 21.95 22.24 21.25
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/99
S&P 500(R) Consumer
Index price index
- ------------------------------------------------------------------------------
6 months 12.61% 1.34%
- ------------------------------------------------------------------------------
1 year 21.03 2.09
- ------------------------------------------------------------------------------
Life of fund 208.86 11.02
Annual average 29.11 2.40
- ------------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. 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-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. For class C shares, returns for periods prior to
their inception are derived from the historical performance of class A
shares, adjusted to reflect both the CDSC currently applicable to class C
shares, which is 1% for the first year and is eliminated thereafter, and
the higher operating expenses applicable to class C shares. All returns
assume reinvestment of distributions at NAV. 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 5/31/99
Class A Class B Class C Class M
- ----------------------------------------------------------------------------
Distributions (number) 2 2 1 2
- ----------------------------------------------------------------------------
Income $0.110 $0.058 $0.048 $0.075
- ----------------------------------------------------------------------------
Capital gains
Long-term 1.003 1.003 -- 1.003
- ----------------------------------------------------------------------------
Short-term 0.132 0.132 -- 0.132
- ----------------------------------------------------------------------------
Total $1.245 $1.193 $0.048 $1.210
- ----------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
- ----------------------------------------------------------------------------
11/30/98 $14.82 $15.72 $14.70 $ -- $14.75 $15.28
- ----------------------------------------------------------------------------
2/1/99 -- -- -- 14.21 -- --
- ----------------------------------------------------------------------------
5/31/99 15.15 16.07 15.01 15.12 15.07 15.62
- ----------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/99 (most recent calendar quarter)
Class A Class B Class C Class M
(inception dates) (1/5/95) (1/5/95) (2/1/99) (1/5/95)
NAV POP NAV CDSC NAV CDSC NAV POP
- -----------------------------------------------------------------------------
6 months 11.28% 4.89% 10.90% 5.90% 10.87% 9.87% 10.99% 7.13%
- -----------------------------------------------------------------------------
1 year 15.60 8.93 14.71 9.71 14.78 13.78 15.01 11.00
- -----------------------------------------------------------------------------
Life of fund 152.77 138.25 144.22 144.22 144.46 144.46 147.07 138.40
Annual average 23.00 21.38 22.06 22.06 22.08 22.08 22.37 21.40
- -----------------------------------------------------------------------------
Past performance is no assurance of future results. More recent returns
may be more or less than those shown. They do not take into account any
adjustment for taxes payable on reinvested distributions. 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 summary for method of calculation.
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 C shares are not subject to an initial sales charge and are subject
to a contingent deferred sales charge only if the shares are redeemed
during the first year.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
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 5.75% maximum sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B or C shares and assumes redemption at the end of
the period. Your fund's class B CDSC declines from a 5% maximum during the
first year to 1% during the sixth year. After the sixth year, the CDSC no
longer applies. The CDSC for class C shares is 1% for one year after
purchase.
Comparative benchmarks
Standard and Poor's 500 Stock 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 into 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.
A guide to the financial statements
These sections of the report constitute the fund's financial
statements.
The fund's portfolio lists all the fund's investments and their values as of
the last day of the reporting period. Holdings are organized by asset type and
industry sector, country, or state to show areas of concentration and
diversification.
Statement of assets and liabilities shows how the fund's net assets and share
price is determined. All investment and non-investment assets are added
together. Any unpaid expenses and other liabilities are subtracted from this
total. The result is divided by the number of shares to determine the net
asset value per share, which is calculated separately for each class of
shares. (For funds with preferred shares, the amount subtracted from total
assets includes the net assets allocated to remarketed preferred shares.)
Statement of operations shows the fund's net investment gain or loss for the
reporting period. This is determined by adding up all the fund's earnings --
from dividends and interest income -- and subtracting its operating expenses.
This statement also lists any net gain or loss the fund realized on the sales
of its holdings and -- for holdings that remain in the portfolio -- any change
in unrealized gains or losses over the period.
Statement of changes in net assets shows how the fund's net assets were
affected by distributions to shareholders and by changes in the number of the
fund's shares. It lists distributions and their sources (net investment income
or realized capital gains) over the current reporting period and the most
recent fiscal year-end. The distributions listed here may not match the amounts
listed in the Statement of Operations because the distributions are determined
on a tax basis and may be paid in a different period from the one in which they
were earned.
Financial highlights provide an overview of the fund's investment results,
per-share distributions, expense ratios, net investment income ratios and
portfolio turnover in one summary table, reflecting the five most recent
reporting periods. In a semiannual report, the highlight table also includes
the current reporting period. For open-ended funds, a separate table is
provided for each share class.
<TABLE>
<CAPTION>
The fund's portfolio
May 31, 1999 (Unaudited)
COMMON STOCKS (98.5%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C>
Aerospace and Defense (2.5%)
- --------------------------------------------------------------------------------------------------------------------------
741,130 Boeing Co. $ 31,312,743
284,950 Northrop Grumman Corp. 19,234,125
421,865 Raytheon Co. Class A 28,027,656
--------------
78,574,524
Automotive (2.8%)
- --------------------------------------------------------------------------------------------------------------------------
363,681 Delphi Automotive Systems Corp. (NON) 7,137,244
619,105 Ford Motor Co. 35,327,679
520,340 General Motors Corp. 35,903,460
217,225 Lear Corp. (NON) 10,684,755
--------------
89,053,138
Basic Industrial Products (2.3%)
- --------------------------------------------------------------------------------------------------------------------------
237,905 Caterpillar, Inc. 13,055,037
516,760 Deere (John) & Co. 19,669,178
291,285 Minnesota Mining & Manufacturing Co. 24,977,689
363,745 Parker-Hannifin Corp. 15,891,110
--------------
73,593,014
Business Equipment and Services (1.1%)
- --------------------------------------------------------------------------------------------------------------------------
634,897 Xerox Corp. 35,673,275
Chemicals (4.3%)
- --------------------------------------------------------------------------------------------------------------------------
249,445 Dow Chemical Co. 30,307,568
595,235 du Pont (E.I.) de Nemours & Co., Ltd. 38,950,690
758,650 Monsanto Co. 31,483,975
208,970 PPG Industries, Inc. 12,681,867
256,710 Union Carbide Corp. 13,172,432
587,210 Witco Chemical Corp. 10,276,175
--------------
136,872,707
Computer Equipment (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
690,290 Seagate Technology, Inc. 20,838,129
Computer Services and Software (3.6%)
- --------------------------------------------------------------------------------------------------------------------------
400,345 Electronic Data Systems Corp. 22,519,406
554,564 IBM Corp. 64,502,725
703,090 NCR Corp. 27,464,453
--------------
114,486,584
Conglomerates (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
237,705 Allied-Signal, Inc. 13,801,747
509,800 TRW, Inc. 25,521,863
--------------
39,323,610
Consumer Durable Goods (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
299,915 Whirlpool Corp. 19,344,518
Consumer Non Durables (3.3%)
- --------------------------------------------------------------------------------------------------------------------------
244,375 Colgate-Palmolive Co. 24,406,953
444,605 Kimberly-Clark Corp. 26,092,756
781,510 Philip Morris Cos., Inc. 30,136,979
252,640 Procter & Gamble Co. 23,590,260
--------------
104,226,948
Consumer Services (0.9%)
- --------------------------------------------------------------------------------------------------------------------------
1,555,750 Service Corp. International 29,850,953
Electronics and Electrical Equipment (2.4%)
- --------------------------------------------------------------------------------------------------------------------------
389,985 Emerson Electric Co. 24,910,292
389,830 Motorola, Inc. 32,282,797
363,930 Rockwell International Corp. 20,084,387
--------------
77,277,476
Entertainment (0.6%)
- --------------------------------------------------------------------------------------------------------------------------
604,930 Disney (Walt) Productions, Inc. 17,618,586
Environmental Control (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
320,070 Waste Management, Inc. 16,923,701
Food and Beverages (4.7%)
- --------------------------------------------------------------------------------------------------------------------------
130,625 Anheuser-Busch Cos., Inc. 9,543,789
284,085 Bestfoods 14,204,250
272,360 General Mills, Inc. 21,890,935
112,775 Heinz (H.J.) Co. 5,448,442
383,610 Kellogg Co. 13,306,472
899,090 Pepsi Bottling Group, Inc. (The) 20,847,649
938,685 Sara Lee Corp. 22,528,440
281,130 Seagram Co., Ltd. 14,601,189
396,120 The Quaker Oats Co. 26,168,678
--------------
148,539,844
Forest Products (2.2%)
- --------------------------------------------------------------------------------------------------------------------------
1,058,545 Boise Cascade Corp. 41,944,846
1,238,975 Smurfit-Stone Container Corp. (NON) 26,715,398
--------------
68,660,244
Hospital Management and Medical Services (0.5%)
- --------------------------------------------------------------------------------------------------------------------------
713,700 Tenet Healthcare Corp. (NON) 17,485,650
Insurance and Finance (21.9%)
- --------------------------------------------------------------------------------------------------------------------------
169,835 Aetna Inc. 15,423,141
583,220 Allstate Corp. 21,251,079
540,525 American General Corp. 39,052,931
250,013 AON Corp. 10,750,538
1,042,494 Bank One Corp. 58,966,067
830,760 Bank of America Corp. 53,739,788
464,345 BankBoston Corp. 21,998,344
1,212,220 Charter One Financial, Inc. 34,472,506
250,455 Chase Manhattan Corp. 18,157,988
476,493 CIGNA Corp. 44,432,972
627,517 Citigroup, Inc. 41,573,001
384,635 Fannie Mae 26,155,180
504,950 Fleet Financial Group, Inc. 20,766,069
29,000 Goldman Sachs Group, Inc. (The) (NON) 1,970,188
665,305 Lehman Brothers Holding, Inc. 36,342,286
303,400 Mercantile Bancorporation, Inc. 17,729,938
291,495 Merrill Lynch & Co., Inc. 24,485,580
273,475 Morgan (J.P.) & Co., Inc. 38,098,486
333,280 National City Corp. 22,058,970
538,665 PNC Bank Corp. 30,838,571
624,445 St. Paul Cos., Inc. 22,206,825
304,205 The Chubb Corp. 21,313,363
228,900 The Equitable Cos., Inc. 16,065,919
905,205 U.S. Bancorp 29,419,163
782,680 Washington Mutual, Inc. 29,888,593
--------------
697,157,486
Medical Supplies and Devices (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
54,700 Bausch & Lomb, Inc. 4,177,713
459,270 Baxter International, Inc. 29,651,619
43,700 Bergen Brunswig Corp. Class A 1,002,369
382,205 Mallinckrodt Inc. 13,233,848
--------------
48,065,549
Metals and Mining (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
400,770 Alcoa Inc. 22,042,350
Oil and Gas (11.0%)
- --------------------------------------------------------------------------------------------------------------------------
327,580 Atlantic Richfield Co. 27,414,351
312,545 Chevron, Inc. 28,969,015
920,610 Conoco, Inc. (NON) 24,971,546
609,193 Exxon Corp. 48,659,291
772,425 Halliburton Co. 31,959,084
353,840 Mobil Corp. 35,826,300
1,282,915 Occidental Petroleum Corp. 27,101,579
67,700 Phillips Petroleum Co. 3,575,406
568,075 Royal Dutch Petroleum Co. PLC ADR (Netherlands) 32,131,742
594,300 Sonat, Inc. 21,060,506
608,365 Tosco Corp. 15,551,330
480,075 Unocal Corp. 19,082,981
630,090 Williams Cos., Inc. 32,646,538
--------------
348,949,669
Packaging and Containers (1.0%)
- --------------------------------------------------------------------------------------------------------------------------
1,086,085 Owens-Illinois, Inc. (NON) 33,125,593
Pharmaceuticals (5.1%)
- --------------------------------------------------------------------------------------------------------------------------
708,374 American Home Products Corp. 40,820,052
572,780 Bristol-Myers Squibb Co. 39,307,028
595,990 Merck & Co., Inc. 40,229,325
749,460 Pharmacia & Upjohn, Inc. 41,548,189
--------------
161,904,594
Photography (0.7%)
- --------------------------------------------------------------------------------------------------------------------------
338,985 Eastman Kodak Co. 22,923,861
Publishing (1.5%)
- --------------------------------------------------------------------------------------------------------------------------
382,855 McGraw-Hill, Inc. 19,860,603
446,205 Times Mirror Co. Class A 26,298,207
--------------
46,158,810
Retail (3.8%)
- --------------------------------------------------------------------------------------------------------------------------
621,220 Federated Department Stores, Inc. (NON) 33,856,490
1,393,070 Kmart Corp. (NON) 21,418,451
903,540 Rite Aid Corp. 22,588,500
675,145 Saks, Inc. (NON) 18,650,881
523,490 Sears, Roebuck & Co. 25,029,366
--------------
121,543,688
Specialty Consumer Products (1.2%)
- --------------------------------------------------------------------------------------------------------------------------
717,385 Hasbro, Inc. 20,535,146
678,800 Mattel, Inc. 17,945,775
--------------
38,480,921
Telecommunications (0.8%)
- --------------------------------------------------------------------------------------------------------------------------
347,310 Nortel Networks Corp. (Canada) 26,048,250
Transportation (2.7%)
- --------------------------------------------------------------------------------------------------------------------------
728,367 Burlington Northern Santa Fe Corp. 22,579,377
563,355 Delta Air Lines, Inc. 32,322,493
1,001,550 Southwest Airlines Co. 32,112,197
--------------
87,014,067
Utilities (12.4%)
- --------------------------------------------------------------------------------------------------------------------------
345,245 ALLTEL Corp. 24,749,751
926,235 American Telephone & Telegraph Co. 51,406,043
260,195 Ameritech Corp. 17,124,083
537,675 Bell Atlantic Corp. 29,437,706
525,175 Consolidated Edison, Inc. 25,503,811
478,340 Dominion Resources, Inc. 20,658,309
385,000 Duke Energy Corp. 23,220,313
791,960 Edison International 21,778,900
815,705 Entergy Corp. 26,459,431
595,855 GTE Corp. 37,576,106
868,050 SBC Communications, Inc. 44,379,051
229,125 Sprint Corp. 25,833,844
492,390 Texas Utilities Co. 22,157,550
433,117 U S West, Inc. 23,415,388
--------------
393,700,286
--------------
Total Common Stocks (cost $2,664,948,496) $3,135,458,025
SHORT-TERM INVESTMENTS (1.7%) (a) (cost $52,691,000)
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
$ 52,691,000 Interest in $500,000,000 joint repurchase
agreement May 28, 1999 with Merrill Lynch,
Pierce, Fenner & Smith due June 1, 1999 with
respect to various U.S. Treasury obligations --
maturity value of $52,718,985 for an effective
yield of 4.78%. $ 52,691,000
- --------------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,717,639,496) (b) $3,188,149,025
- --------------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $3,181,355,284.
(b) The aggregate identified cost on a tax basis is $2,723,013,185, resulting in gross unrealized appreciation and
depreciation of $553,548,956 and $88,413,116, respectively, or net unrealized appreciation of $465,135,840.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipts, representing ownership of foreign
securities on deposit with a domestic custodian bank.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of assets and liabilities
May 31, 1999 (Unaudited)
<S> <C>
Assets
- -----------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,717,639,496) (Note 1) $3,188,149,025
- -----------------------------------------------------------------------------------------------
Cash 248
- -----------------------------------------------------------------------------------------------
Dividends and other receivables 6,099,465
- -----------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 4,837,831
- -----------------------------------------------------------------------------------------------
Receivable for securities sold 32,330,690
- -----------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 16,089
- -----------------------------------------------------------------------------------------------
Total assets 3,231,433,348
Liabilities
- -----------------------------------------------------------------------------------------------
Distributions payable to shareholders 607,126
- -----------------------------------------------------------------------------------------------
Payable for securities purchased 39,014,975
- -----------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,723,919
- -----------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 4,004,374
- -----------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 284,437
- -----------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 29,738
- -----------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 5,441
- -----------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 2,214,017
- -----------------------------------------------------------------------------------------------
Other accrued expenses 194,037
- -----------------------------------------------------------------------------------------------
Total liabilities 50,078,064
- -----------------------------------------------------------------------------------------------
Net assets $3,181,355,284
Represented by
- -----------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,545,702,922
- -----------------------------------------------------------------------------------------------
Distributions in excess of net investment income (Note 1) (5,361,896)
- -----------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 170,504,729
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 470,509,529
- -----------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $3,181,355,284
Computation of net asset value and offering price
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,360,902,646 divided by 89,836,401 shares) $15.15
- -----------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $15.15)* $16.07
- -----------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,607,987,805 divided by 107,103,343 shares)** $15.01
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class C share
($19,627,863 divided by 1,297,912 shares)** $15.12
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($181,693,455 divided by 12,057,412 shares) $15.07
- -----------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $15.07)* $15.62
- -----------------------------------------------------------------------------------------------
Net asset value and redemption price per class Y share
($11,143,515 divided by 734,917 shares) $15.16
- -----------------------------------------------------------------------------------------------
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group
sales, the offering price is reduced.
** Redemption price per share is equal to net asset value less any applicable contingent
deferred sales charge.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of operations
Six months ended May 31, 1999 (Unaudited)
<S> <C>
Investment income:
- -----------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $20,137) $ 29,924,440
- -----------------------------------------------------------------------------------------------
Interest 1,026,736
- -----------------------------------------------------------------------------------------------
Total investment income 30,951,176
Expenses:
- -----------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 7,701,122
- -----------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,740,664
- -----------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 22,318
- -----------------------------------------------------------------------------------------------
Administrative services (Note 2) 15,949
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,628,613
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 7,725,158
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 30,326
- -----------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 660,114
- -----------------------------------------------------------------------------------------------
Amortization of organization costs (Note 1) 25,947
- -----------------------------------------------------------------------------------------------
Reports to shareholders 66,339
- -----------------------------------------------------------------------------------------------
Registration fees 46,913
- -----------------------------------------------------------------------------------------------
Auditing 30,542
- -----------------------------------------------------------------------------------------------
Legal 7,129
- -----------------------------------------------------------------------------------------------
Postage 158,051
- -----------------------------------------------------------------------------------------------
Other 151,988
- -----------------------------------------------------------------------------------------------
Total expenses 20,011,173
- -----------------------------------------------------------------------------------------------
Expense reduction (Note 2) (236,026)
- -----------------------------------------------------------------------------------------------
Net expenses 19,775,147
- -----------------------------------------------------------------------------------------------
Net investment income 11,176,029
- -----------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 169,658,408
- -----------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 146,596,505
- -----------------------------------------------------------------------------------------------
Net gain on investments 316,254,913
- -----------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $327,430,942
- -----------------------------------------------------------------------------------------------
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
May 31 November 30
1999* 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ---------------------------------------------------------------------------------------------------------------
Operations:
- ---------------------------------------------------------------------------------------------------------------
Net investment income $ 11,176,029 $ 17,147,176
- ---------------------------------------------------------------------------------------------------------------
Net realized gain on investments 169,658,408 238,908,465
- ---------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 146,596,505 5,190,262
- ---------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 327,430,942 261,245,903
- ---------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ---------------------------------------------------------------------------------------------------------------
From net investment income
Class A (9,541,371) (11,930,300)
- ---------------------------------------------------------------------------------------------------------------
Class B (6,033,402) (4,389,527)
- ---------------------------------------------------------------------------------------------------------------
Class C (13,898) --
- ---------------------------------------------------------------------------------------------------------------
Class M (885,006) (840,741)
- ---------------------------------------------------------------------------------------------------------------
Class Y (64,248) --
- ---------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (95,172,384) (97,636,949)
- ---------------------------------------------------------------------------------------------------------------
Class B (114,535,773) (116,758,295)
- ---------------------------------------------------------------------------------------------------------------
Class M (13,019,830) (14,114,976)
- ---------------------------------------------------------------------------------------------------------------
Class Y (442,722) --
- ---------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 195,985,326 436,621,079
- ---------------------------------------------------------------------------------------------------------------
Total increase in net assets 283,707,634 452,196,194
Net assets
- ---------------------------------------------------------------------------------------------------------------
Beginning of period 2,897,647,650 2,445,451,456
- ---------------------------------------------------------------------------------------------------------------
End of period (including distribution in excess
of net investment income of $5,361,896
and --, respectively) $3,181,355,284 $2,897,647,650
- ---------------------------------------------------------------------------------------------------------------
* 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 For the period
Per-share May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.82 $14.87 $13.11 $11.01 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .08(c) .15(c) .19(c) .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.49 1.32 2.52 2.41 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.57 1.47 2.71 2.64 2.60
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.11) (.14) (.20) (.21) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.13) (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.24) (1.52) (.95) (.54) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.15 $14.82 $14.87 $13.11 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.70* 10.97 22.29 24.95 30.62*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,360,903 $1,241,384 $1,051,276 $637,204 $250,328
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .45* .96 1.00 1.09 1.35*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .57* 1.04 1.40 1.92 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.40* 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements and brokerage
service arrangements. (Note 2).
(c) Per share net investment income has been determined on the basis of the weighted average number of shares outstanding
during the period.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.70 $14.77 $13.03 $10.96 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .03(c) .04(c) .09(c) .15 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.47 1.30 2.51 2.39 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.50 1.34 2.60 2.54 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.06) (.03) (.11) (.14) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.13) (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.19) (1.41) (.86) (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.01 $14.70 $14.77 $13.03 $10.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.24* 10.07 21.42 23.98 29.72*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,607,988 $1,480,683 $1,242,817 $763,438 $259,789
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .83* 1.71 1.75 1.84 2.03*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .20* .29 .65 1.17 1.36*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.40* 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements and brokerage
service arrangements. (Note 2).
(c) 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 C
- ------------------------------------------------------------------------------------------------------------------------------------
For the period
February 1,1999+
Per-share to May 31
operating performance (Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value,
beginning of period $14.21
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .02(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments .94
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations .96
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.12
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 7.67*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $19,628
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .55*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .16*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.40*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements and brokerage
service arrangements. (Note 2).
(c) 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 May 31 Jan. 5, 1995+
operating performance (Unaudited) Year ended November 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.75 $14.81 $13.06 $10.98 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .05(c) .08(c) .13(c) .18 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.48 1.31 2.51 2.39 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.53 1.39 2.64 2.57 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.07) (.14) (.16) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.13) (1.38) (.75) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.21) (1.45) (.89) (.49) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.07 $14.75 $14.81 $13.06 $10.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.41* 10.37 21.73 24.28 30.04*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $181,693 $169,631 $151,359 $95,576 $33,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .70* 1.46 1.50 1.59 1.80*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .32* .54 .90 1.42 1.58*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.40* 81.62 74.51 83.97 64.18*
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements and brokerage
service arrangements. (Note 2).
(c) 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 May 31 Oct 1, 1998+
operating performance (Unaudited) to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $14.83 $12.69
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .10(c) .03(c)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.49 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment operations 1.59 2.14
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.13) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.26) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $15.16 $14.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) 11.83* 16.86*
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,144 $5,949
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .33* .12*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .70* 1.82*
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.40* 81.62
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset arrangements and brokerage
service arrangements. (Note 2).
(c) 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
May 31, 1999 (Unaudited)
Note 1
Significant accounting policies
Putnam Growth and Income Fund II, 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 as a primary
objective and current income as a secondary objective by investing
primarily in a portfolio of common stocks that offer the potential for
capital growth, current income or both.
The fund offers class A, class B, class C, class M and class Y shares.
Effective February 1, 1999, the fund began offering class C shares. Class
A shares are sold with a maximum front-end sales charge of 5.75%. Class B
shares, which convert to class A shares after approximately eight years,
do not pay a front-end sales charge but pay a higher ongoing distribution
fee than class A shares, and are subject to a contingent deferred sales
charge, if those shares are redeemed within six years of purchase. Class C
shares are subject to the same fees and expenses as class B shares, except
that class C shares have a one-year 1.00% contingent deferred sales charge
and do not convert to class A shares. Class M shares are sold with a
maximum front end sales charge of 3.50% and pay an ongoing distribution
fee that is higher than class A shares but lower than class B shares.
Class Y shares, which are sold at net asset value, are generally subject
to the same expenses as class A, class B, class C, and class M shares, but
do not bear a distribution fee. Class Y shares are sold to defined
contribution plans that invest at least $150 million in a combination of
Putnam Funds and other accounts managed by affiliates of Putnam
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,
except that certain U.S. government obligations are stated at the mean
between the bid and asked prices. Short-term investments having remaining
maturities of 60 days or less are stated at amortized cost which
approximates market, and other investments are stated at fair value
following procedures approved by the Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other
registered investment companies and certain other accounts managed by
Putnam Investment 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. Collateral
for certain tri-party repurchase agreements is held at the counterparty's
custodian in a segregated account for the benefit of the fund and the
counterparty. Putnam Management is responsible for determining that the
value of these underlying securities is at all times at least equal to the
resale price, including accrued interest.
D) Security transactions and related investment income Security
transactions are accounted for on the trade date (date the order to buy or
sell is executed). 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) 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 six months ended
May 31, 1999, the fund had no borrowings against the line of credit.
F) 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.
G) 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.
H) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public
offering of its shares were $74,298. These expenses are being amortized on
projected net asset levels over a five-year period.
Note 2
Management fee, administrative
services and other transactions
Compensation of Putnam Management, for management and investment advisory
services is paid quarterly based on the average net assets of the fund.
Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of
the next $500 million, 0.45% of the next $5 billion, 0.425% of the next $5
billion, 0.405% of the next $5 billion, 0.39% of the next $5 billion and
0.38% 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 May 31, 1999, fund expenses were reduced by
$236,026 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 $2,270
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, class C and class M shares pursuant to Rule 12b-1 under
the Investment Company Act of 1940. The purpose of the Plans is to
compensate Putnam 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%,
1.00%, and 1.00% of the average net assets attributable to class A, class
B, class C and class M shares, respectively. The Trustees have approved
payment by the fund at an annual rate of 0.25%, 1.00%, 1.00% and 0.75% of
the average net assets attributable to class A, class B, class C and class
M shares, respectively.
For the six months ended May 31, 1999, Putnam Mutual Funds Corp., acting
as underwriter received net commissions of $397,451 and $19,435 from the
sale of class A and class M shares, respectively and received $1,393,007
and $523 in contingent deferred sales charges from redemptions of class B
and C shares. A deferred sales charge of up to 1% is assessed on certain
redemptions of class A shares. For six months ended May 31, 1999, Putnam
Mutual Funds Corp., acting as underwriter received $5,895 on class A
redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1999, purchases and sales of
investment securities other than short-term investments aggregated
$1,474,732,195 and $1,522,882,124, respectively. There were no purchases
and sales of U.S. government obligations. 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
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 8,648,324 $125,890,985
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,476,279 100,743,119
- -----------------------------------------------------------------------------
16,124,603 226,634,104
Shares
repurchased (10,030,482) (145,579,687)
- -----------------------------------------------------------------------------
Net increase 6,094,121 $ 81,054,417
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class A Shares Amount
- -----------------------------------------------------------------------------
Shares sold 20,442,932 $292,893,989
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,775,781 105,381,506
- -----------------------------------------------------------------------------
28,218,713 398,275,495
Shares
repurchased (15,156,694) (215,190,365)
- -----------------------------------------------------------------------------
Net increase 13,062,019 $183,085,130
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 9,017,211 $130,015,525
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,472,854 113,188,864
- -----------------------------------------------------------------------------
17,490,065 243,204,389
Shares
repurchased (11,095,987) (159,286,638)
- -----------------------------------------------------------------------------
Net increase 6,394,078 $ 83,917,751
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class B Shares Amount
- -----------------------------------------------------------------------------
Shares sold 23,784,618 $338,432,197
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,487,949 114,094,241
- -----------------------------------------------------------------------------
32,272,567 452,526,438
Shares
repurchased (15,729,296) (221,639,841)
- -----------------------------------------------------------------------------
Net increase 16,543,271 $230,886,597
- -----------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations)
to May 31, 1999
- -----------------------------------------------------------------------------
Class C Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,321,963 $19,590,115
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 833 11,926
- -----------------------------------------------------------------------------
1,322,796 19,602,041
Shares
repurchased (24,884) (385,002)
- -----------------------------------------------------------------------------
Net increase 1,297,912 $19,217,039
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 1,099,958 $15,887,772
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 987,722 13,239,902
- -----------------------------------------------------------------------------
2,087,680 29,127,674
Shares
repurchased (1,529,233) (22,099,205)
- -----------------------------------------------------------------------------
Net increase 558,447 $ 7,028,469
- -----------------------------------------------------------------------------
Year ended November 30, 1998
- -----------------------------------------------------------------------------
Class M Shares Amount
- -----------------------------------------------------------------------------
Shares sold 2,642,075 $ 37,737,716
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 1,052,351 14,186,957
- -----------------------------------------------------------------------------
3,694,426 51,924,673
Shares
repurchased (2,415,573) (34,283,460)
- -----------------------------------------------------------------------------
Net increase 1,278,853 $ 17,641,213
- -----------------------------------------------------------------------------
Six months ended May 31, 1999
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 377,214 $5,437,339
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 37,594 506,970
- -----------------------------------------------------------------------------
414,808 5,944,309
Shares
repurchased (80,938) (1,176,659)
- -----------------------------------------------------------------------------
Net increase 333,870 $4,767,650
- -----------------------------------------------------------------------------
For the period October 1, 1998
(commencement of operations)
to November 30, 1998
- -----------------------------------------------------------------------------
Class Y Shares Amount
- -----------------------------------------------------------------------------
Shares sold 482,326 $6,175,945
- -----------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions -- --
- -----------------------------------------------------------------------------
482,326 6,175,945
Shares
repurchased (81,279) (1,167,806)
- -----------------------------------------------------------------------------
Net increase 401,047 $5,008,139
- -----------------------------------------------------------------------------
The Putnam family of funds
The following is a complete list of Putnam's open-end mutual funds. Please
call your financial advisor or Putnam at 1-800-225-1581 to obtain a prospectus
for any Putnam fund. It contains more complete information, including charges
and expenses. Please read it carefully before you invest or send money.
GROWTH FUNDS
Asia Pacific Growth Fund
Capital Appreciation Fund [DBL. DAGGER]
Capital Opportunities Fund
Diversified Equity Trust
Europe Growth Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Opportunities Fund [DBL. DAGGER]
OTC & Emerging Growth Fund
Research Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Convertible Income-Growth Trust
Equity Income Fund
The George Putnam Fund of Boston
Global Growth and Income Fund
The Putnam Fund for Growth and Income
Growth and Income Fund II
International Growth and Income Fund
New Value Fund
Utilities Growth and Income Fund
INCOME FUNDS
American Government Income Fund
Diversified Income Trust
Global Governmental Income Trust
High Yield Advantage Fund [DBL. DAGGER]
High Yield Trust [DBL. DAGGER]
High Yield Trust II
Income Fund
Intermediate U.S. Government
Income Fund
Money Market Fund **
Preferred Income Fund
Strategic Income Fund *
U.S. Government Income Trust
TAX-FREE INCOME FUNDS
Municipal Income Fund
Tax Exempt Income Fund
Tax Exempt Money Market Fund**
Tax-Free High Yield Fund
Tax-Free Insured Fund
State tax-free income funds [SECTION MARK]
Arizona, California, Florida, Massachusetts, Michigan, Minnesota,
New Jersey, New York, Ohio and Pennsylvania
State tax-free money market funds [SECTION MARK] **
California, New York
ASSET ALLOCATION FUNDS
Putnam Asset Allocation Funds -- three investment portfolios that spread your
money across a variety of stocks, bonds, and money market investments.
The three portfolios:
Asset Allocation: Balanced Portfolio
Asset Allocation: Conservative Portfolio
Asset Allocation: Growth Portfolio
* Formerly Putnam Diversified Income Trust II
[DBL. DAGGER] Closed to new investors. Some exceptions may apply. Contact
Putnam for details.
[SECTION MARK] Not available in all states.
** An investment in a money market fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency.
Although the funds seek to preserve your investment at $1.00 per share, it
is possible to lose money by investing in the fund.
Check your account balances and current performance at www.putnaminv.com.
Fund information
WEB SITE
www.putnaminv.com
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
John A. Hill, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
Ronald J. Jackson
Paul L. Joskow
Elizabeth T. Kennan
Lawrence J. Lasser
John H. Mullin III
Robert E. Patterson
George Putnam, III
A.J.C. Smith
W. Thomas Stephens
W. Nicholas Thorndike
OFFICERS
George Putnam
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 and Fund Manager
Richard A. Monaghan
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Growth and
Income Fund II. 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' Web site: 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
- ---------------------
For account balances, economic forecasts, and the latest on Putnam funds, visit
www.putnaminv.com
SA023-53205 949/990/096 7/99
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
- ----------------------------------------------------------------------------
Putnam Growth and Income Fund II
Supplement to Semiannual Report dated 5-31-99
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, including corporate IRAs,
investing $150 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, class B, class C, and class M shares, which
are discussed more extensively in the semiannual report.
ANNUAL RESULTS AT A GLANCE
- ----------------------------------------------------------------------------
Total return for periods ended 5/31/99: NAV
6 months 11.83%
1 year 13.41
Life of fund (since class A inception, 1/5/95) 149.61
Annual average 23.11
Share value:
November 30, 1998 $14.83
May 31, 1999 15.16
- ----------------------------------------------------------------------------
Distributions: No. Income Capital gains Total
2 $0.127 1.135 $1.262
- ----------------------------------------------------------------------------
Past performance is not indicative of future results. Class Y shares are
offered without an initial sales charge or CDSC. The class Y share returns
shown for periods before their inception (10/1/98) are derived from the
historical performance of class A shares for such periods, but have not
been adjusted to reflect differences in expenses, which are lower for class
Y shares than for class A shares. All returns assume reinvestment of
distributions at net asset value. Investment return will fluctuate and may
involve the loss of principal. Performance of other share classes will vary.
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.
