Putnam
Classic Equity
Fund*
SEMIANNUAL REPORT ON PERFORMANCE AND OUTLOOK
5-31-00
*Formerly Putnam Growth and Income Fund II
[SCALE LOGO OMITTED]
From the Trustees
[GRAPHIC OMITTED: PHOTO OF JOHN A. HILL AND GEORGE PUTNAM, III]
Dear Shareholder:
It is a pleasure to greet you in our new roles as Chairman of the
Trustees and President of the Funds. As you know, both of us have been
members of the Board of Trustees for a number of years -- years in which
Putnam has experienced tremendous growth and transformed itself from a
respected U.S. investment management firm to a financial institution
with a global presence.
As the organization makes its way into the new century, we are certain
that the changes that lie ahead will be even more breathtaking in their
scope. What will not change is the Trustees' dedication to serving the
best interests of our shareholders.
We are pleased to announce the appointment of Deborah F. Kuenstner as
fund manager. Prior to joining Putnam in 1997, Debby held positions at
DuPont Pension Fund Investment and Merrill Lynch Securities Research.
She has 20 years of investment experience.
Respectfully yours,
/S/ JOHN A. HILL /S/ GEORGE PUTNAM, III
John A. Hill George Putnam, III
Chairman of the Trustees President of the Funds
July 19, 2000
REPORT FROM THE FUND MANAGER
Deborah F. Kuenstner
During the first half of Putnam Classic Equity Fund's fiscal year, value
stocks underperformed the overall market in part because investors
favored growth and discarded value and also because higher interest
rates put a squeeze on earnings and profits. A market correction in
early March had a deleterious effect on many growth stocks. For the
remainder of the semiannual period, investors took a renewed interest in
diversification, shifting a portion of their assets to sectors other
than technology. As a result, the market broadened and stock prices in
many sectors, including those held in your portfolio, rebounded nicely.
However, the rebound was not sufficient to compensate for prolonged
weakness experienced between December and March.
Total return for 6 months ended 5/31/00
Class A Class B Class C Class M
NAV POP NAV CDSC NAV CDSC NAV POP
------------------------------------------------------------------------
-3.15% -8.71% -3.52% -7.88% -3.54% -4.41% -3.37% -6.74%
------------------------------------------------------------------------
Past performance is not indicative of future results. Performance
information for longer periods and explanation of performance
calculation methods begin on page 6.
* FUND CHANGES NAME AND INVESTMENT CRITERIA
Effective May 15, 2000, your fund's name was changed from Putnam Growth
and Income Fund II to Putnam Classic Equity Fund. Along with the name
change, we modified your fund's investment strategy to emphasize total
return over current income. A stock selection process incorporating new
yet well-tested methods of identifying undervalued stocks was
implemented. In contrast to traditional, or deep value, investing, which
recognizes only those stocks that are absolutely cheap within the
overall market, your fund employs a more inclusive relative value
strategy, which buys stocks when they are cheap relative to other stocks
within the same industry or sector. Under these more flexible
guidelines, your fund can own a larger percentage of stocks from sectors
not traditionally associated with value investing -- technology, for
instance -- provided that each of those stocks is undervalued relative
to the market, its industry, or its sector.
[GRAPHIC OMITTED: horizontal bar chart TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Banking 11.8%
Pharmaceuticals 11.3%
Oil and gas 7.5%
Computers 6.4%
Electric utilities 5.5%
Footnote reads:
*Based on net assets as of 5/31/00. Holdings will vary over time.
We believe that these alterations in the fund's strategy are appropriate
in light of changes in the economy and the stock market over the past
few years. With its new strategy in place, we believe your fund can more
easily take advantage of attractive opportunities among large companies
in all sectors of the U.S. economy. Additionally we believe the fund is
better positioned to participate in market rallies. New trends in value
investing have produced encouraging results.
Although we have altered the investment strategy, your fund's investment
objective has not changed -- we continue to seek capital appreciation
with income as a secondary objective. As always, we seek companies that
are focused on rewarding shareholders by undertaking positive changes
that might include restructuring, new product lines, cost reductions,
and acquisitions. We favor classic companies that are successfully
embracing new technologies and business practices to remain competitive
and profitable. The fund remains diversified among many market sectors.
Your fund's value orientation makes it an appropriate investment vehicle
for investors seeking positive returns with less risk over the long
term.
* SHORTSIGHTEDNESS, HIGHER INTEREST RATES PROVIDE BLUE-CHIP OPPORTUNITIES
When the fund's fiscal year began, investors were cashing in their
shares of traditional, blue-chip stocks in order to buy technology
stocks. Valuations for non-technology stocks suffered as they fell out
of favor. The situation was exacerbated as the Federal Reserve Board
continued the tightening process it had begun in June 1999. The Fed has
raised short-term interest rates six times since then and three times
since the fund's fiscal year began on December 1, 1999. Although the
technology sector remained largely resistant to higher interest rates,
other sectors struggled to remain profitable under the burden of higher
costs.
Your fund's management team was able to take advantage of many
opportunities to purchase high-quality companies experiencing temporary
price weakness. The result has been an overall improvement in the
quality of the portfolio, which now holds more blue-chip companies than
it had in the past.
"I think that the opportunity is greater right now on the value side
because investors have overlooked a lot of stocks and they have not
fully understood the implications of the Internet on the cost structures
of old economy companies."
-- Deborah F. Kuenstner, manager, Putnam Classic Equity Fund
One especially good example of a blue-chip stock that your fund was able
to buy on weakness is American International Group (AIG). The company
specializes in commercial- and industrial-insurance coverage, including
property, casualty, marine, life, and financial services insurance, and
operates in over 100 countries. Its non-insurance businesses include
commodities trading, private banking, mutual fund management, retirement
products, and interest-rate and currency swaps. AIG shares appreciated
as soon as investors recognized the company's inherent growth potential
and its steeply discounted stock price. While this stock, as well as
others mentioned in this report, was viewed favorably at the end of the
period, all are subject to review in accordance with your fund's
investment policy and may change in the future.
* UTILITIES, PHARMACEUTICALS PROVIDE RENEWED POTENTIAL
Utilities are common to value portfolios because they tend to behave
defensively in down markets and they provide high dividend yields.
Utilities companies are interest-rate sensitive and as a result of the
Fed's incremental adjustments, they became attractively priced. We
emphasized utilities stocks not only because they could be purchased
cheaply but also because we believe the sector offers plenty of new
potential as the benefits of deregulation become realized.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
Intel Corp.
Electronics
ExxonMobil Corp.
Oil and gas
General Electric Co.
Conglomerates
SBC Communications, Inc.
Regional Bells
American International Group, Inc.
Insurance
Johnson & Johnson
Pharmaceuticals
Merck & Co., Inc.
Pharmaceuticals
Bristol-Myers Squibb Co.
Pharmaceuticals
Hewlett-Packard Co.
Computers
Coca-Cola Co.
Beverages
Footnote reads:
These holdings represent 24.6% of the fund's net assets as of 5/31/00.
Portfolio holdings will vary over time.
Companies within this sector are now able to generate cash, either
through the sale of physical assets they no longer need or by borrowing
against the value of those assets. They are using the cash to pay down
debts, buy back shares, and make strategic acquisitions. Restructuring
and consolidation are well underway and companies are becoming more
streamlined and competitive. As new uses for existing infrastructures
are explored, the utilities sector is no longer as staid and predictable
as it once was, and we believe shareholder value will be unlocked as the
sector evolves.
Pharmaceutical stocks fell strongly out of favor while investors went
big-game hunting for technology stocks. Unusually low valuations
translated into attractive yields and P/E ratios that satisfied your
fund's investment criteria, an uncommon occurrence for pharmaceuticals,
which are more typically associated with growth portfolios. We
opportunistically bought shares of several top companies, including
Johnson & Johnson, American Home Products, Warner-Lambert, and Pharmacia
Corp. (formerly Pharmacia & Upjohn), and all contributed positively to
fund performance.
The closing of a planned merger between Pharmacia & Upjohn and Monsanto
was received positively, despite consumers' strong resistance to
Monsanto's bioengineered food products. Monsanto's pharmaceutical
division enjoyed success with the popular arthritis drug, Celebrex. The
merger of Monsanto and Pharmacia & Upjohn was completed near the end of
your fund's fiscal year, and share prices of the resulting Pharmacia
Corp. have continued to climb as investors recognize the benefits of the
union.
* DIVERSIFICATION IMPORTANT IN MONTHS AHEAD
We believe the Fed is nearing the end of its tightening process, and we
should soon be seeing signs of an economic slowdown. We expect the
growth rate of the economy will moderate and yet sustain itself at a
rate that is higher than the average of the past twenty years.
Volatility, which has been severe by historical standards, may continue
as the slowdown takes hold and concern arises about the sustainability
of the expansion. The equity markets will remain vulnerable and so
investors should keep their eyes trained on long-term fundamentals and
actively pursue the benefits of asset allocation and diversification. We
believe that your fund can play an important role in a diversified
portfolio and that it is well positioned to produce positive total
returns with less volatility over a market cycle.
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 5/31/00, 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
Classic Equity Fund is designed for investors seeking primarily capital
growth but also current income potential through common stocks.
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 5/31/00
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
6 months -3.15% -8.71% -3.52% -7.88% -3.54% -4.41% -3.37% -6.74%
---------------------------------------------------------------------------------------
1 year -10.22 -15.36 -10.91 -14.92 -10.88 -11.68 -10.70 -13.84
---------------------------------------------------------------------------------------
5 years 93.31 82.16 85.97 83.97 86.26 86.26 88.43 81.92
Annual average 14.09 12.74 13.21 12.97 13.25 13.25 13.51 12.71
---------------------------------------------------------------------------------------
Life of fund 122.09 109.34 113.00 112.00 113.39 113.39 116.04 108.46
Annual average 15.92 14.66 15.03 14.93 15.07 15.07 15.33 14.57
---------------------------------------------------------------------------------------
</TABLE>
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/00
S&P 500 Consumer
Index price index
-----------------------------------------------------------------------
6 months 2.90% 1.72%
-----------------------------------------------------------------------
1 year 10.48 3.07
-----------------------------------------------------------------------
5 years 190.44 12.55
Annual average 23.76 2.39
-----------------------------------------------------------------------
Life of fund 241.22 14.05
Annual average 25.44 2.46
-----------------------------------------------------------------------
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-, 5-, and 10-year
(where available) 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. 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.
<TABLE>
<CAPTION>
PRICE AND DISTRIBUTION INFORMATION 6 MONTHS ENDED 5/31/00
Class A Class B Class C Class M
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Distributions (number) 2 2 2 2
--------------------------------------------------------------------------------------
Income $0.100 $0.050 $0.054 $0.066
--------------------------------------------------------------------------------------
Capital gains
Long-term 0.864 0.864 0.864 0.864
--------------------------------------------------------------------------------------
Short-term 0.428 0.428 0.428 0.428
--------------------------------------------------------------------------------------
Total $1.392 $1.342 $1.346 $1.358
--------------------------------------------------------------------------------------
Share value: NAV POP NAV NAV NAV POP
--------------------------------------------------------------------------------------
11/30/99 $13.95 $14.80 $13.82 $13.91 $13.87 $14.37
--------------------------------------------------------------------------------------
5/31/00 12.16 12.90 12.04 12.12 12.09 12.53
--------------------------------------------------------------------------------------
Current return (end of period)
--------------------------------------------------------------------------------------
Current dividend rate1 1.64% 1.55% 0.86% 0.96% 1.09% 1.05%
--------------------------------------------------------------------------------------
Current 30-day SEC yield2 0.82 0.78 0.11 0.09 0.36 0.34
--------------------------------------------------------------------------------------
1 Income portion of most recent distribution, annualized and divided by NAV or POP at
end of period.
2 Based on investment income, calculated using SEC guidelines.
</TABLE>
<TABLE>
<CAPTION>
TOTAL RETURN FOR PERIODS ENDED 6/30/00 (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
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------
6 months -2.27% -7.92% -2.67% -7.53% -2.62% -3.59% -2.55% -5.98%
-------------------------------------------------------------------------------------------
1 year -12.97 -17.97 -13.63 -17.52 -13.55 -14.33 -13.43 -16.47
-------------------------------------------------------------------------------------------
5 years 88.76 77.96 81.75 79.75 81.92 81.92 84.04 77.56
Annual average 13.55 12.22 12.69 12.44 12.71 12.71 12.97 12.17
-------------------------------------------------------------------------------------------
Life of fund 119.98 107.35 110.93 109.93 111.35 111.35 113.89 106.39
Annual average 15.47 14.23 14.59 14.49 14.63 14.63 14.88 14.14
-------------------------------------------------------------------------------------------
</TABLE>
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 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 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 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.
WELCOME TO WWW.PUTNAMINV.COM
Now you can use your PC to get up-to-date information about
your funds, learn more about investing and retirement planning,
and access market news and economic outlooks from Putnam.
VISIT PUTNAM'S SITE ON THE WORLD WIDE WEB FOR:
* the benefits of investing with Putnam
* Putnam's money management philosophy
* complete fund information, daily pricing and long-term performance
* your current account value, portfolio value and transaction history
* the latest on new funds and other Putnam news
You can also read Putnam economist Dr. Robert Goodman's commentary and
Putnam's Capital Markets outlook, search for a particular fund by name
or objective, use our glossary to decode investment terms . . . and much
more.
The site can be accessed through any of the major online services (America
Online, CompuServe, Prodigy) that offer web access. Of course, you can also
access it via Netscape or Microsoft Internet Explorer, using an independent
Internet service provider.
New features will be added to the site regularly. So be sure to bookmark us at
http://www.putnaminv.com
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 are determined. All investment and noninvestment 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 sources 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-end funds, a
separate table is provided for each share class.
<TABLE>
<CAPTION>
THE FUND'S PORTFOLIO
May 31, 2000 (Unaudited)
COMMON STOCKS (98.7%) (a)
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace/Defense (0.9%)
-------------------------------------------------------------------------------------------------------------------
374,970 Boeing Co. $ 14,647,266
90,450 United Technologies Corp. 5,466,572
----------------
20,113,838
Banking (11.8%)
-------------------------------------------------------------------------------------------------------------------
615,475 Bank of America Corp. 34,197,330
850,894 Bank One Corp. 28,132,683
1,156,831 Charter One Financial, Inc. 26,317,905
160,000 Chase Manhattan Corp. 11,950,000
441,855 Comerica, Inc. 22,368,909
343,515 First Union Corp. 12,087,434
889,041 FleetBoston Financial Corp. 33,616,863
161,945 Morgan (J.P.) & Co., Inc. 20,850,419
767,205 National City Corp. 15,344,100
560,065 PNC Bank Corp. 28,213,274
566,565 Wells Fargo Co. 25,637,066
449,500 Zions Bancorp 20,957,938
----------------
279,673,921
Beverage (3.4%)
-------------------------------------------------------------------------------------------------------------------
732,800 Coca-Cola Co. 39,113,200
525,800 Coca-Cola Enterprises, Inc. 9,004,325
818,315 PepsiCo, Inc. 33,295,192
----------------
81,412,717
Cable Television (0.6%)
-------------------------------------------------------------------------------------------------------------------
341,900 Adelphia Communications Corp. (NON) 14,488,013
Chemicals (1.9%)
-------------------------------------------------------------------------------------------------------------------
75,400 Avery Dennison Corp. 4,618,250
164,295 Dow Chemical Co. 17,589,833
325,215 du Pont (E.I.) de Nemours & Co., Ltd. 15,935,535
222,700 Rohm & Haas Co. 7,599,638
----------------
45,743,256
Commercial and Consumer Services (0.2%)
-------------------------------------------------------------------------------------------------------------------
1,796,734 Service Corp. International 5,613,891
Communications Equipment (1.9%)
-------------------------------------------------------------------------------------------------------------------
98,500 Corning, Inc. 19,053,594
495,200 Nortel Networks Corp. 26,895,550
----------------
45,949,144
Computers (6.4%)
-------------------------------------------------------------------------------------------------------------------
95,900 Apple Computer, Inc. (NON) 8,055,600
508,500 Dell Computer Corp. (NON) 21,929,063
278,800 Gateway, Inc. (NON) 13,800,600
346,995 Hewlett-Packard Co. 41,682,774
348,329 IBM Corp. 37,380,056
135,300 Lexmark International Group, Inc. Class A (NON) 9,437,175
281,535 NCR Corp. (NON) 11,877,258
124,405 Seagate Technology, Inc. (NON) 7,215,490
----------------
151,378,016
Conglomerates (5.0%)
-------------------------------------------------------------------------------------------------------------------
1,337,700 General Electric Co. 70,396,463
190,755 Honeywell International, Inc. 10,431,914
813,545 Tyco International Ltd. 38,287,462
----------------
119,115,839
Consumer Goods (0.8%)
-------------------------------------------------------------------------------------------------------------------
318,700 Kimberly-Clark Corp. 19,281,350
Electric Utilities (5.5%)
-------------------------------------------------------------------------------------------------------------------
380,100 Carolina Power & Light Co. 13,065,938
732,180 CiNergy Corp. 19,494,293
453,140 Dominion Resources, Inc. 20,731,155
750,160 Edison International 16,034,670
836,705 Entergy Corp. 24,264,445
385,000 NiSource, Inc. 6,954,063
556,900 Reliant Energy, Inc. 15,871,650
351,190 TXU Corp. 12,555,043
----------------
128,971,257
Electrical Equipment (1.5%)
-------------------------------------------------------------------------------------------------------------------
357,160 Emerson Electric Co. 21,072,440
346,290 Rockwell International Corp. 14,197,890
----------------
35,270,330
Electronics (5.4%)
-------------------------------------------------------------------------------------------------------------------
767,200 Intel Corp. 95,660,238
218,300 Linear Technology Corp. 12,893,344
108,790 Motorola, Inc. 10,199,063
127,300 Solectron Corp. (NON) 4,208,856
115,930 W W Grainger 4,629,954
----------------
127,591,455
Energy (0.6%)
-------------------------------------------------------------------------------------------------------------------
152,500 Halliburton Co. 7,777,500
79,645 Schlumberger Ltd. 5,858,885
----------------
13,636,385
Financial (3.5%)
-------------------------------------------------------------------------------------------------------------------
486,900 American Express Co. 26,201,306
273,530 Associates First Capital Corp. 7,504,979
382,600 Citigroup, Inc. 23,792,938
439,135 Fannie Mae 26,402,992
----------------
83,902,215
Food (1.5%)
-------------------------------------------------------------------------------------------------------------------
523,645 General Mills, Inc. 20,782,161
200,415 The Quaker Oats Co. 14,743,028
----------------
35,525,189
Health Care Services (3.4%)
-------------------------------------------------------------------------------------------------------------------
541,215 Baxter International, Inc. 35,990,798
309,238 CIGNA Corp. 27,464,200
556,155 Mallinckrodt, Inc. 16,093,735
----------------
79,548,733
Insurance (4.0%)
-------------------------------------------------------------------------------------------------------------------
263,385 American General Corp. 16,873,102
507,400 American International Group, Inc. 57,114,213
142,600 Jefferson-Pilot Corp. 9,785,925
258,265 Lincoln National Corp. 10,007,769
----------------
93,781,009
Investment Banking/Brokerage (1.4%)
-------------------------------------------------------------------------------------------------------------------
179,950 Merrill Lynch & Co., Inc. 17,747,569
323,700 Paine Webber Group, Inc. 14,546,269
----------------
32,293,838
Machinery (0.2%)
-------------------------------------------------------------------------------------------------------------------
150,000 Caterpillar, Inc. 5,737,500
Media (0.3%)
-------------------------------------------------------------------------------------------------------------------
134,675 Seagram Co., Ltd. 6,422,314
Medical Technology (0.5%)
-------------------------------------------------------------------------------------------------------------------
154,435 Bausch & Lomb, Inc. 10,733,233
Metals (0.4%)
-------------------------------------------------------------------------------------------------------------------
162,960 Alcoa, Inc. 9,522,975
Natural Gas Utilities (1.7%)
-------------------------------------------------------------------------------------------------------------------
300,400 El Paso Energy Corp. 15,470,600
612,240 Williams Cos., Inc. 25,446,225
----------------
40,916,825
Oil & Gas (7.5%)
-------------------------------------------------------------------------------------------------------------------
358,100 BP Amoco Plc ADR (United Kingdom) 19,471,688
282,300 Burlington Resources, Inc. 12,915,225
147,150 Chevron, Inc. 13,602,178
554,395 Conoco, Inc. 14,830,066
897,426 ExxonMobil Corp. 74,766,804
446,885 Royal Dutch Petroleum Co. Plc ADR (Netherlands) 27,902,382
481,790 Tosco Corp. 14,754,819
----------------
178,243,162
Paper & Forest Products (1.1%)
-------------------------------------------------------------------------------------------------------------------
248,115 Boise Cascade Corp. 7,226,349
372,045 Owens-Illinois, Inc. (NON) 4,185,506
346,240 Smurfit-Stone Container Corp. (NON) 4,912,280
202,620 Weyerhaeuser Co. 10,055,018
----------------
26,379,153
Pharmaceuticals (11.3%)
-------------------------------------------------------------------------------------------------------------------
515,405 Abbott Laboratories 20,970,541
438,524 American Home Products Corp. 23,625,481
822,150 Bristol-Myers Squibb Co. 45,269,634
564,100 Johnson & Johnson 50,486,950
630,520 Merck & Co., Inc. 47,052,555
633,005 Pharmacia Corp. 32,876,697
308,100 Schering-Plough Corp. 14,904,338
254,400 Warner-Lambert Co. 31,068,600
----------------
266,254,796
Publishing (1.1%)
-------------------------------------------------------------------------------------------------------------------
104,300 Gannett Co., Inc. 6,753,425
489,100 Tribune Co. 18,830,350
----------------
25,583,775
Railroads (0.5%)
-------------------------------------------------------------------------------------------------------------------
496,897 Burlington Northern Santa Fe Corp. 11,739,192
Regional Bells (5.0%)
-------------------------------------------------------------------------------------------------------------------
669,595 Bell Atlantic Corp. 35,404,836
363,855 GTE Corp. 23,013,829
1,381,281 SBC Communications, Inc. 60,344,714
----------------
118,763,379
Retail (2.7%)
-------------------------------------------------------------------------------------------------------------------
603,900 CVS Corp. 26,269,650
235,575 Federated Department Stores, Inc. (NON) 9,069,638
257,700 Lowe's Cos., Inc. 11,999,156
319,000 Sears, Roebuck & Co. 11,783,063
319,000 Staples, Inc. (NON) 4,705,250
----------------
63,826,757
Software (1.5%)
-------------------------------------------------------------------------------------------------------------------
317,500 BMC Software, Inc. (NON) 13,970,000
398,700 Computer Associates International, Inc. 20,533,050
----------------
34,503,050
Technology Services (2.4%)
-------------------------------------------------------------------------------------------------------------------
449,400 Automatic Data Processing, Inc. 24,688,913
493,530 Electronic Data Systems Corp. 31,740,148
----------------
56,429,061
Telecommunications (2.5%)
-------------------------------------------------------------------------------------------------------------------
327,045 ALLTEL Corp. 21,401,007
212,135 AT&T Corp. 7,358,433
364,600 AT&T Wireless Group (NON) 10,413,888
336,255 Sprint Corp. 20,343,428
----------------
59,516,756
Toys (0.3%)
-------------------------------------------------------------------------------------------------------------------
413,608 Hasbro, Inc. 6,772,831
----------------
Total Common Stocks (cost $2,090,190,678) $ 2,334,635,155
SHORT-TERM INVESTMENTS (1.4%) (a) (cost $33,218,000)
PRINCIPAL AMOUNT VALUE
-------------------------------------------------------------------------------------------------------------------
$33,218,000 Interest in $616,280,000 joint repurchase agreement
dated May 31, 2000 with S.B.C. Warburg, Inc.
due June 1, 2000 with respect to various U.S. Treasury
obligations -- maturity value of $33,223,869 for an
effective yield of 6.36% $ 33,218,000
-------------------------------------------------------------------------------------------------------------------
Total Investments (cost $2,123,408,678) (b) $ 2,367,853,155
-------------------------------------------------------------------------------------------------------------------
(a) Percentages indicated are based on net assets of $2,364,764,849.
(b) The aggregate identified cost on a tax basis is $2,128,833,034,
resulting in gross unrealized appreciation and depreciation of
$363,562,682 and $124,542,561, respectively, or net unrealized
appreciation of $239,020,121.
(NON) Non-income-producing security.
ADR after the name of a foreign holding stands for American
Depositary 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, 2000 (Unaudited)
<S> <C>
Assets
-------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $2,123,408,678) (Note 1) $2,367,853,155
-------------------------------------------------------------------------------------------
Cash 732
-------------------------------------------------------------------------------------------
Dividends and other receivables 4,082,774
-------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 2,572,761
-------------------------------------------------------------------------------------------
Total assets 2,374,509,422
Liabilities
-------------------------------------------------------------------------------------------
Distributions payable to shareholders 626,842
-------------------------------------------------------------------------------------------
Payable for securities purchased 769,054
-------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 3,410,422
-------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 3,075,205
-------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 227,487
-------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 84,546
-------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,137
-------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,479,924
-------------------------------------------------------------------------------------------
Other accrued expenses 67,956
-------------------------------------------------------------------------------------------
Total liabilities 9,744,573
-------------------------------------------------------------------------------------------
Net assets $2,364,764,849
Represented by
-------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $2,374,707,169
-------------------------------------------------------------------------------------------
Distribution in excess of net investment income (7,771,000)
-------------------------------------------------------------------------------------------
Accumulated net realized loss on investments and
foreign currency transactions (Note 1) (246,615,797)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 244,444,477
-------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $2,364,764,849
Computation of net asset value and offering price
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($1,092,223,574 divided by 89,850,269 shares) $12.16
-------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $12.16)* $12.90
-------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,097,212,605 divided by 91,124,245 shares)** $12.04
-------------------------------------------------------------------------------------------
Net asset value and offering price per class C share
($36,654,532 divided by 3,023,524 shares)** $12.12
-------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($126,722,630 divided by 10,482,819 shares) $12.09
-------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $12.09)* $12.53
-------------------------------------------------------------------------------------------
Net asset value, offering and redemption price per class Y share
($11,951,508 divided by 982,479 shares) $12.16
-------------------------------------------------------------------------------------------
* 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, 2000 (Unaudited)
<S> <C>
Investment income:
-------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $69,531) $ 23,705,921
-------------------------------------------------------------------------------------------
Interest 478,130
-------------------------------------------------------------------------------------------
Total investment income 24,184,051
Expenses:
-------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 6,414,359
-------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,691,740
-------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 26,464
-------------------------------------------------------------------------------------------
Administrative services (Note 2) 9,715
-------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 1,376,642
-------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 5,889,833
-------------------------------------------------------------------------------------------
Distribution fees -- Class C (Note 2) 165,229
-------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 513,291
-------------------------------------------------------------------------------------------
Amortization of organization expense (Note 1) 3,234
-------------------------------------------------------------------------------------------
Reports to shareholders 39,379
-------------------------------------------------------------------------------------------
Registration fees 1,542
-------------------------------------------------------------------------------------------
Auditing 13,905
-------------------------------------------------------------------------------------------
Legal 6,854
-------------------------------------------------------------------------------------------
Postage 137,162
-------------------------------------------------------------------------------------------
Other 332,988
-------------------------------------------------------------------------------------------
Total expenses 16,622,337
-------------------------------------------------------------------------------------------
Expense reduction (Note 2) (262,628)
-------------------------------------------------------------------------------------------
Net expenses 16,359,709
-------------------------------------------------------------------------------------------
Net investment income 7,824,342
-------------------------------------------------------------------------------------------
Net realized loss on investments (Notes 1 and 3) (249,212,407)
-------------------------------------------------------------------------------------------
Net realized gain on futures contracts (Note 1) 122,588
-------------------------------------------------------------------------------------------
Net realized loss on foreign currency transactions (Note 1) (1,800,076)
-------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 133,078,611
-------------------------------------------------------------------------------------------
Net loss on investments (117,811,284)
-------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations $(109,986,942)
-------------------------------------------------------------------------------------------
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
2000* 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in net assets
--------------------------------------------------------------------------------------------------
Operations:
--------------------------------------------------------------------------------------------------
Net investment income $ 7,824,342 $ 23,974,161
--------------------------------------------------------------------------------------------------
Net realized gain (loss) on investments and
foreign currency transactions (250,889,895) 275,524,331
--------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) of investments 133,078,611 (212,547,158)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets resulting
from operations (109,986,942) 86,951,334
--------------------------------------------------------------------------------------------------
Distributions to shareholders:
--------------------------------------------------------------------------------------------------
From net investment income
Class A (9,010,346) (15,867,236)
--------------------------------------------------------------------------------------------------
Class B (4,985,569) (7,235,528)
--------------------------------------------------------------------------------------------------
Class C (138,514) (123,755)
--------------------------------------------------------------------------------------------------
Class M (763,704) (1,249,709)
--------------------------------------------------------------------------------------------------
Class Y (92,398) (140,745)
--------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (114,805,557) (97,967,221)
--------------------------------------------------------------------------------------------------
Class B (131,475,725) (117,899,429)
--------------------------------------------------------------------------------------------------
Class C (3,041,812) --
--------------------------------------------------------------------------------------------------
Class M (15,280,228) (13,402,187)
--------------------------------------------------------------------------------------------------
Class Y (939,380) (455,724)
--------------------------------------------------------------------------------------------------
Increase (decrease) from capital
share transactions (Note 4) (145,013,650) 170,041,224
--------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets (535,533,825) 2,651,024
Net assets
--------------------------------------------------------------------------------------------------
Beginning of period 2,900,298,674 2,897,647,650
--------------------------------------------------------------------------------------------------
End of period (including distributions in excess
of net investment income of $7,771,000 and
$604,811, respectively) $2,364,764,849 $2,900,298,674
--------------------------------------------------------------------------------------------------
* 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
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.95 $14.82 $14.87 $13.11 $11.01 $8.53
-------------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------------
Net investment income .06(c) .17(c) .15(c) .19(c) .23 .15
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) .30 1.32 2.52 2.41 2.45
-------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.40) .47 1.47 2.71 2.64 2.60
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net
investment income (.10) (.17) (.14) (.20) (.21) (.12)
-------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.29) (1.17) (1.38) (.75) (.33) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (1.39) (1.34) (1.52) (.95) (.54) (.12)
-------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.16 $13.95 $14.82 $14.87 $13.11 $11.01
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.15)* 3.55 10.97 22.29 24.95 30.62*
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,092,224 $1,285,330 $1,241,384 $1,051,276 $637,204 $250,328
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .48* .90 .96 1.00 1.09 1.35*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .52* 1.19 1.04 1.40 1.92 2.03*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.78* 80.27 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) 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
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.82 $14.70 $14.77 $13.03 $10.96 $8.53
-------------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------------
Net investment income .02(c) .06(c) .04(c) .09(c) .15 .11
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) .29 1.30 2.51 2.39 2.42
-------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.44) .35 1.34 2.60 2.54 2.53
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net
investment income (.05) (.06) (.03) (.11) (.14) (.10)
-------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.29) (1.17) (1.38) (.75) (.33) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (1.34) (1.23) (1.41) (.86) (.47) (.10)
-------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.04 $13.82 $14.70 $14.77 $13.03 $10.96
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.52)* 2.72 10.07 21.42 23.98 29.72*
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,097,213 $1,406,793 $1,480,683 $1,242,817 $763,438 $259,789
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.65 1.71 1.75 1.84 2.03*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .14* .44 .29 .65 1.17 1.36*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.78* 80.27 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) 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
--------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Feb. 1, 1999+
operating performance (Unaudited) to Nov 30
--------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------
<S> <C> <C>
Net asset value,
beginning of period $13.91 $14.21
--------------------------------------------------------------------------
Investment operations
--------------------------------------------------------------------------
Net investment income (c) .02 .06
--------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.46) (.25)
--------------------------------------------------------------------------
Total from
investment operations (.44) (.19)
--------------------------------------------------------------------------
Less distributions:
--------------------------------------------------------------------------
From net
investment income (.06) (.11)
--------------------------------------------------------------------------
From net realized gain
on investments (1.29) --
--------------------------------------------------------------------------
Total distributions (1.35) (.11)
--------------------------------------------------------------------------
Net asset value,
end of period $12.12 $13.91
--------------------------------------------------------------------------
Ratios and supplemental data
--------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.54)* (1.36)*
--------------------------------------------------------------------------
Net assets, end of period
(in thousands) $36,655 $33,369
--------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .85* 1.37*
--------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .15* .42*
--------------------------------------------------------------------------
Portfolio turnover (%) 49.78* 80.27
--------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) 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
-------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $13.87 $14.75 $14.81 $13.06 $10.98 $8.53
-------------------------------------------------------------------------------------------------------------------
Investment operations
-------------------------------------------------------------------------------------------------------------------
Net investment income .03(c) .10(c) .08(c) .13(c) .18 .12
-------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.45) .29 1.31 2.51 2.39 2.43
-------------------------------------------------------------------------------------------------------------------
Total from
investment operations (.42) .39 1.39 2.64 2.57 2.55
-------------------------------------------------------------------------------------------------------------------
Less distributions:
-------------------------------------------------------------------------------------------------------------------
From net
investment income (.07) (.10) (.07) (.14) (.16) (.10)
-------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (1.29) (1.17) (1.38) (.75) (.33) --
-------------------------------------------------------------------------------------------------------------------
Total distributions (1.36) (1.27) (1.45) (.89) (.49) (.10)
-------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $12.09 $13.87 $14.75 $14.81 $13.06 $10.98
-------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
-------------------------------------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.37)* 2.97 10.37 21.73 24.28 30.04*
-------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $126,723 $164,524 $169,631 $151,359 $95,576 $33,406
-------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .73* 1.40 1.46 1.50 1.59 1.80*
-------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .27* .69 .54 .90 1.42 1.58*
-------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 49.78* 80.27 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) 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 Year ended Oct 1, 1998+
operating performance (Unaudited) Nov. 30 to Nov. 30
---------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.96 $14.83 $12.69
---------------------------------------------------------------------------------------
Investment operations
---------------------------------------------------------------------------------------
Net investment income .08(c) .21(c) .03(c)
---------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (.47) .30 2.11
---------------------------------------------------------------------------------------
Total from
investment operations (.39) .51 2.14
---------------------------------------------------------------------------------------
Less distributions:
---------------------------------------------------------------------------------------
From net
investment income (.12) (.21) --
---------------------------------------------------------------------------------------
From net realized gain
on investments (1.29) (1.17) --
---------------------------------------------------------------------------------------
Total distributions (1.41) (1.38) --
---------------------------------------------------------------------------------------
Net asset value,
end of period $12.16 $13.96 $14.83
---------------------------------------------------------------------------------------
Ratios and supplemental data
---------------------------------------------------------------------------------------
Total return at
net asset value (%)(a) (3.09)* 3.80 16.86*
---------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $11,952 $10,282 $5,949
---------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .35* .65 .12*
---------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .64* 1.45 1.82*
---------------------------------------------------------------------------------------
Portfolio turnover (%) 49.78* 80.27 81.62
---------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) 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, 2000 (Unaudited)
Note 1
Significant accounting policies
Putnam Classic Equity Fund (formerly 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.
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 and class C 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 Investments 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 of the financial statements and the reported
amounts of increases and decreases in net assets from operations during
the reporting period. 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 sales price on its principal exchange, or if no sales
are reported -- as in the case of some securities traded
over-the-counter -- the last reported bid price. Short-term investments
having remaining maturities of 60 days or less are stated at amortized
cost, which approximates market value. Other investments, including
restricted securities, 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 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). Gains or losses on securities sold are determined
on the identified cost basis. 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, and other assets and liabilities are recorded in the
books and records of the fund after translation to U.S. dollars based on
the exchange rates on that day. The cost of each security is determined
using historical exchange rates. Income and withholding taxes are
translated at prevailing exchange rates when accrued or incurred. The
fund does not isolate that portion of realized or unrealized gains or
losses resulting from changes in the foreign exchange rate on
investments from fluctuations arising from changes in the market prices
of the securities. Such gains and losses are included with the net
realized and unrealized gain or loss on investments. Net realized gains
and losses on foreign currency transactions represent net realized
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. Investments in foreign securities involve certain risks, including
those related to economic instability, unfavorable political
developments, and currency fluctuations, not present with domestic
investments.
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 May 31, 2000, 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.
J) 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 have been fully
amortized on a projected net asset basis over a five year period as of
May 31, 2000.
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, 2000, fund expenses were reduced by
$262,628 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 $2,934
has been allocated to the fund, and an additional fee for each Trustees
meeting attended. 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
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 a 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 Retail Management, Inc., 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 Retail Management, Inc. 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, 2000, Putnam Retail Management, Inc.,
acting as underwriter received net commissions of $467,039 and $11,866
from the sale of class A and class M shares, respectively, and received
$1,886,310 and $11,790 in contingent deferred sales charges from
redemptions of class B and class C shares, respectively. A deferred
sales charge of up to 1% is assessed on certain redemptions of class A
shares. For the six months ended May 31, 2000, Putnam Retail Management,
Inc., acting as underwriter received $23,482 on class A redemptions.
Note 3
Purchases and sales of securities
During the six months ended May 31, 2000, cost of purchases and proceeds
from sales of investment securities other than short-term investments
aggregated $1,231,953,578 and $1,681,802,139, respectively. There were
no purchases and sales of U.S. government obligations.
Note 4
Capital shares
At May 31, 2000, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were as follows:
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 14,882,412 $176,235,511
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 9,397,825 118,276,213
---------------------------------------------------------------------------
24,280,237 294,511,724
Shares
repurchased (26,595,489) (320,572,674)
---------------------------------------------------------------------------
Net decrease (2,315,252) $(26,060,950)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class A Shares Amount
---------------------------------------------------------------------------
Shares sold 18,669,104 $272,494,542
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,053,815 109,354,708
---------------------------------------------------------------------------
26,722,919 381,849,250
Shares
repurchased (18,299,678) (264,906,773)
---------------------------------------------------------------------------
Net increase 8,423,241 $116,942,477
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 7,719,243 $ 91,900,898
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 10,201,388 127,748,250
---------------------------------------------------------------------------
17,920,631 219,649,148
Shares
repurchased (28,584,162) (333,940,845)
---------------------------------------------------------------------------
Net decrease (10,663,531) $(114,291,697)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class B Shares Amount
---------------------------------------------------------------------------
Shares sold 15,688,548 $226,670,283
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 8,757,178 117,408,543
---------------------------------------------------------------------------
24,445,726 344,078,826
Shares
repurchased (23,367,215) (335,758,781)
---------------------------------------------------------------------------
Net increase 1,078,511 $ 8,320,045
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 1,070,801 $12,647,024
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 224,321 2,826,210
---------------------------------------------------------------------------
1,295,122 15,473,234
Shares
repurchased (671,024) (7,953,742)
---------------------------------------------------------------------------
Net increase 624,098 $ 7,519,492
---------------------------------------------------------------------------
For the period February 1, 1999
(commencement of operations) to
November 30, 1999
---------------------------------------------------------------------------
Class C Shares Amount
---------------------------------------------------------------------------
Shares sold 2,608,982 $38,655,593
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 7,297 108,005
---------------------------------------------------------------------------
2,616,279 38,763,598
Shares
repurchased (216,853) (3,121,646)
---------------------------------------------------------------------------
Net increase 2,399,426 $35,641,952
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,060,371 $ 12,516,273
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 1,226,793 15,400,588
---------------------------------------------------------------------------
2,287,164 27,916,861
Shares
repurchased (3,664,208) (42,834,782)
---------------------------------------------------------------------------
Net decrease (1,377,044) $(14,917,921)
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class M Shares Amount
---------------------------------------------------------------------------
Shares sold 1,995,704 $28,793,256
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 1,035,562 13,950,645
---------------------------------------------------------------------------
3,031,266 42,743,901
Shares
repurchased (2,670,368) (38,457,556)
---------------------------------------------------------------------------
Net increase 360,898 $ 4,286,345
---------------------------------------------------------------------------
Six months ended May 31, 2000
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 581,328 $6,667,321
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 82,081 1,031,778
---------------------------------------------------------------------------
663,409 7,699,099
Shares
repurchased (417,441) (4,961,673)
---------------------------------------------------------------------------
Net increase 245,968 $2,737,426
---------------------------------------------------------------------------
Year ended November 30, 1999
---------------------------------------------------------------------------
Class Y Shares Amount
---------------------------------------------------------------------------
Shares sold 490,789 $7,118,518
---------------------------------------------------------------------------
Shares issued in
connection with
reinvestments of
distributions 43,598 596,469
---------------------------------------------------------------------------
534,387 7,714,987
Shares
repurchased (198,923) (2,864,582)
---------------------------------------------------------------------------
Net increase 335,464 $4,850,405
---------------------------------------------------------------------------
OUR COMMITMENT TO QUALITY SERVICE
* CHOOSE AWARD-WINNING SERVICE
Putnam Investments has won the DALBAR Service Award 8 times in the past
9 years. In 1997 and 1998, Putnam was the only company to win all three
DALBAR awards: for service to investors, to financial advisors, and to
variable annuity contract holders.*
* HELP YOUR INVESTMENTS GROW
Set up a systematic program for investing with as little as $25 a month
from a Putnam money market fund or from your checking or savings
account.+
* SWITCH FUNDS EASILY
Within the same class of shares, you can move money from one account to
another without a service charge. (This privilege is subject to change
or termination.)
* ACCESS YOUR MONEY QUICKLY
You can get checks sent regularly or redeem shares any business day at
the then-current net asset value, which may be more or less than the
original cost of the shares.
For details about any of these or other services, contact your financial
advisor or call the toll-free number shown below and speak with a
helpful Putnam representative. To learn more about Putnam, visit our Web
site.
www.putnaminv.com
To make an additional investment in this or any other Putnam fund,
contact your financial advisor or call our toll-free number.
1-800-225-1581
* DALBAR, Inc., an independent research firm, presents the awards to financial
services firms that provide consistently excellent service.
+ Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market.
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
Capital Opportunities Fund
Europe Growth Fund
Global Equity Fund
Global Growth Fund
Global Natural Resources Fund
Growth Opportunities Fund
Health Sciences Trust
International Growth Fund
International New Opportunities Fund
Investors Fund
New Century Growth Fund
New Opportunities Fund
OTC & Emerging Growth Fund
Research Fund
Tax Smart Equity Fund
Vista Fund
Voyager Fund
Voyager Fund II
GROWTH AND INCOME FUNDS
Balanced Retirement Fund
Classic Equity 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
International Growth and Income Fund
New Value Fund
Small Cap 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 Growth and Income Fund 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 Retail Management, Inc.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
John A. Hill, 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, III
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
Deborah F. Kuenstner
Vice President and Fund Manager
Richard A. Monaghan
Vice President
Richard G. Leibovitch
Vice President
John R. Verani
Vice President
This report is for the information of shareholders of Putnam Classic
Equity Fund. 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
SA023-62262 949/990/096 7/00
PUTNAM INVESTMENTS [SCALE LOGO OMITTED]
---------------------------------------------------------------------------
Putnam Classic Equity Fund*
Supplement to Semiannual Report dated 5/31/00
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 $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,
B, C, and M shares, which are discussed more extensively in the semiannual
report.
ANNUAL RESULTS AT A GLANCE
---------------------------------------------------------------------------
Total return: NAV
Six months ended 5/31/00 -3.09%
1 year -10.06
5 years 95.48
Annual average 14.35
Life of class (since 1/5/95) 124.52
Annual average 16.16%
---------------------------------------------------------------------------
Share value: NAV
11/30/99 $13.96
5/31/00 $12.16
---------------------------------------------------------------------------
Capital gains
Distributions: No. Income Short-term Long-term Total
11/30/99-5/31/00 2 $0.117 $0.428 $0.864 $1.409
---------------------------------------------------------------------------
*Formerly Putnam Growth and Income Fund II.
Please note that past performance does not indicate future results. Returns
shown for class Y shares for periods prior to their inception are derived
from the historical performance of class A shares, adjusted to reflect the
initial sales charge currently applicable to class A shares. These returns
have not been adjusted to reflect differences in operating expenses which,
for class Y shares, are lower than the operating expenses applicable to
class A shares. All returns assume reinvestment of distributions at net
asset value. Performance data reflects an expense limitation previously in
effect. Without the expense limitation, total returns would have been
lower. 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.
