PUTNAM
GROWTH AND
INCOME
FUND II
[Artwork]
SEMIANNUAL REPORT
May 31, 1995
[Putnam Logo]
Boston * London * Tokyo
<PAGE>
PERFORMANCE HIGHLIGHTS
One broad trend may help to explain the current market rally: the dramatic moves
many domestic companies have made to become more efficient. As Business Week no-
ted in a June 19, 1995, article, "After years of massive restructuring, U.S. in-
dustry has reduced its overhead, enhanced productivity, and learned how to com-
pete in the global market."
SEMIANNUAL RESULTS AT A GLANCE
CLASS A CLASS B CLASS M
TOTAL RETURN: NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
(change in value during period
plus reinvested distributions)
life of fund through 5/31/95(1) 13.03% 6.52% 12.69% 7.69% 12.93% 9.03%
- -------------------------------------------------------------------------------
SHARE VALUE: NAV POP NAV NAV POP
- -------------------------------------------------------------------------------
1/16/95 $8.67 $9.20 $8.67 -- --
1/17/95 -- -- -- $8.66 $8.97
5/31/95 9.80 10.40 9.77 9.78 10.13
- -------------------------------------------------------------------------------
Performance data represent past results. For additional performance information,
see pages 8 and 9. POP assumes 5.75% maximum sales charge for class A shares and
3.50% for class M shares. CDSC assumes 5% maximum contingent deferred sales
charge. (1)The fund commenced operations of class A shares and class B shares on
1/16/95, and its class M shares on 1/17/95. Past performance is not indicative
of future results.
<PAGE>
FROM THE CHAIRMAN [Photograph of George Putnam]
*(C) Karsh, Ottawa
DEAR SHAREHOLDER:
AS YOU WILL SEE IN THIS INITIAL REPORT, PUTNAM GROWTH AND INCOME FUND II IS OFF
TO A SPLENDID START SINCE ITS INTRODUCTION IN JANUARY. ITS LAUNCH COULDN'T HAVE
BEEN BETTER TIMED. SINCE THE START OF CALENDAR 1995, THE STOCK MARKET MADE A
REMARKABLE LEAP OUT OF THE DOLDRUMS.
DURING MOST OF THE PERIOD, THE MARKET HAS TENDED TO FAVOR STOCKS OF LARGER, MORE
ESTABLISHED COMPANIES. THESE ARE THE TYPES OF STOCKS IN WHICH YOUR FUND INVESTS.
INTEREST-RATE SENSITIVE STOCKS HAVE ALSO BEEN PERFORMING WELL, AND FUND MANAGER
ANTHONY KREISEL HAS POSITIONED THE FUND TO TAKE ADVANTAGE OF THEIR STRENGTH. TO-
NY HAS ALSO EMPHASIZED COMPANIES THAT HAVE EMBARKED UPON POSITIVE CHANGES.
EMERGING SIGNS THAT THE ECONOMY HAS SLOWED HAS HELPED THE FEDERAL RESERVE BOARD
MAKE THE DECISION TO LOWER SHORT TERM INTEREST RATES, PERHAPS A PLUS FOR STOCK
MARKET PROSPECTS. ON THE PAGES THAT FOLLOW, TONY REVIEWS THE STOCK MARKET ENVI-
RONMENT IN THE CONTEXT OF YOUR FUND'S PERFORMANCE AND OUTLOOK FOR THE REMAINDER
OF FISCAL 1995.
RESPECTFULLY YOURS,
GEORGE PUTNAM
CHAIRMAN OF THE TRUSTEES
JULY 19, 199
*(C) Copyright
<PAGE>
REPORT FROM THE FUND MANAGER
ANTHONY I. KREISEL
Putnam Growth and Income Fund II began its operations at quite a propitious ti-
me. The fund commenced operations on January 16, 1995, shortly after domestic
financial markets had begun a broad and persistent rally. Investor confidence
in a moderating economy, coupled with stabilizing interest rates, helped to fuel
a dramatic upsurge in stock and bond prices. The markets' strength continues as
of this writing, despite some concerns about softening in the U.S. economy.
Between January 16 and May 31, 1995, your fund returned 13.03% at net asset va-
lue (NAV) for class A shares; 12.69% at NAV for class B shares. This is quite
close to the Standard and Poor's *(R) 500 Index's increase of 14.35% over the
same period. While impressive, your fund's returns reflect the slightly negative
effects of a cash drag, a common problem for new funds during their startup pe-
riod. Incoming assets cannot always be invested as quickly as they arrive; hol-
ding some 15% to 20% of a portfolio in cash during a rally will obviously pre-
vent a fund from achieving the performance of a fully-invested portfolio. How-
ever, we believe your fund's cash inflows can now be readily absorbed by new in-
vestments.
OF RALLIES AND SOFT LANDINGS
Domestic financial markets have indeed enjoyed a breathtaking several months.
Prevailing investor optimism contrasts sharply with the gloomy atmosphere six
months ago. Then, equities were stagnant and bond valuations were depressed.
Successive interest-rate increases by the Federal Reserve Board, prompted by a
too-vibrant economy, cast a lengthy shadow over the markets. Toward the end of
1994, however, stock and bond prices were buoyed by hopes of a "soft landing,"
a desirable condition whereby economic growth slackens just enough to stave off
inflation and keep interest rates stable. With evidence growing to support the
soft-landing scenario, the rallies in both markets gained momentum.
*(R) Registered mark
<PAGE>
As of this writing, the S&P 500 Index is hovering at new peaks, and long-term
interest rates are at a low 6.5%. Uneasiness has begun to filter in, though,
with some observers fearing a sharper economic slowdown than previously antici-
pated. In the coming months, investor uncertainty could lead to market turbu-
lence.
INTEREST-RATE-SENSITIVE HOLDINGS BOOSTED OVER PERIOD
In early 1995, we positioned the new fund to take advantage of stable and possi-
bly declining interest rates. Accordingly, we increased its exposure to inte-
rest-rate-sensitive sectors of the economy. Nearly 20% of the fund's net assets
have been in the robust financial sector, which traditionally is helped by sta-
ble interest rates. Banks such as First Chicago, Wells Fargo, and J.P. Morgan
enjoyed strong first quarters. Several of your fund's shares of insurance compa-
nies have been similarly buoyant.
Your fund has had a relatively high weighting in utilities, particularly tele-
phones, up to roughly 10% of net assets. After a difficult 1994, many utilities
had a strong first quarter of 1995; these higher-yielding securities are often
bolstered by stable or declining interest rates. In the coming months, we anti-
cipate a relatively stable interest-rate environment and we expect to maintain
these emphases (though not necessarily these exact weightings) for some
[Bar Chart - Page 5]
TOP INDUSTRY SECTORS*
Insurance & finance 18.5%
Utilities 10.3%
Oil & gas 8.5%
Consumer nondurables 8.3%
Conglomerates 7.4%
* Based on net assets as of 5/31/95. Holdings will vary over time.
<PAGE>
time. Of course, we will continue to carefully monitor the economic developments
affecting the direction of interest rates.
EFFICIENT, LEAN AMERICAN COMPANIES LEAD MARKET
Your fund is managed with an emphasis on value: we aggressively target companies
whose stocks are selling below what we consider to be their real worth. We look
for value in businesses undergoing significant overhauls. In the course of res-
tructuring, such companies typically cut costs, trim unnecessary product lines,
and make positive management changes. Uncovering such potentially beneficial mo-
ves requires intensive, bottom-up research, a practice to which Putnam has long
been committed.
Several holdings in the fund embody the benefits of positive change. Eastman Ko-
dak, the world's largest manufacturer of photographic products, has emerged from
a year of restructuring in strong shape; under new management, we believe the
firm has greatly improved its competitive position. Baxter International's co-
mmon stock also helped your fund's performance. Baxter, the world's largest ma-
nufacturer of disposable medical supplies, embarked on a restructuring and cost-
cutting campaign that included the implementation of a unique and highly effi-
cient compensation plan.
Perhaps the quintessential restructuring story in recent times is IBM. After
years of losing money, IBM trimmed salaries, cut dividends, and sold real estate
(it even auctioned off many of its corporate art holdings). Today, the company's
core products, particularly large mainframe computers, are selling well; it has
accumulated some $10.5 billion in cash over two years. IBM recently used some
retained earnings to purchase Lotus, a premier software company. Clearly, IBM
has reaped the rewards of dramatic change, and its stock has rebounded nicely.
We have also found value in Philip Morris. We believe the company's stock was
overly discounted by investors fearing anti-tobacco litigation in the United
States. However, Philip Morris, along with several other American tobacco pro-
ducers, continues to find a large overseas market for its core products. Fur-
thermore, the company has been aggressively raising dividends, an extremely po-
sitive trend.
<PAGE>
TOP 10 HOLDINGS (5/31/95)*
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EASTMAN KODAK CO.
Photographic equipment
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TRW, INC.
Space, defense, automotive goods
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PHILIP MORRIS CO., INC.
Tobacco products
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AVON PRODUCTS
Beauty care products, fashion jewelry
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J.P. MORGAN AND CO.
Investment banking, financial services
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BENEFICIAL CORP.
Consumer loans, credit insurance
- -------------------------------------------------------------------------------
BAXTER INTERNATIONAL, INC.
Medical devices and technology
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NYNEX CORP.
Telecommunications
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SPRINT CORP.
Telecommunications
- -------------------------------------------------------------------------------
BANKAMERICA CORP.
Regional financial services
- -------------------------------------------------------------------------------
* These holdings represent 21.79% of the fund's assets. Holdings will vary over
time.
A SLOWING ECONOMY MAY DOMINATE MARKETS
A number of factors may affect your fund's performance over the coming months.
We anticipate a fairly pronounced slowdown in the domestic economy. Accordingly,
we have positioned the fund's portfolio to take advantage of a benign interest-
rate outlook. Furthermore, we foresee a slackening in the international economy,
which could cut into certain U.S. corporations' earnings. Whatever happens in
the months ahead, though, you should keep in mind that we invest with a long-
term perspective; day-to-day market shifts do not overly concern us. Indeed,
you too may want to evaluate your investments over longer periods of time, an
approach that tends to smooth out vexing daily fluctuations and helps provide a
broader picture of performance.
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 5/31/95, there is no guarantee the fund will continue to hold
these securities in the future.
<PAGE>
PERFORMANCE SUMMARY
This section provides, at a glance, information about your fund's performance.
Total return shows how the value of the fund's shares changed over time, assu-
ming you held the shares through the entire period and reinvested all distribu-
tions back into the fund. We show total return in two ways: on a cumulative
long-term basis and on average how the fund might have grown each year over va-
rying periods.
Performance should always be considered in light of a fund's investment strate-
gy. Putnam Growth and Income Fund II seeks capital appreciation by investing
primarily in a diversified portfolio of dividend-producing securities. Current
income is a secondary objective.
TOTAL RETURN FOR PERIODS ENDED 5/31/95
STANDARD CONSUMER
CLASS A CLASS B CLASS M & POOR'S PRICE
NAV POP NAV CDSC NAV POP 500 INDEX INDEX
- -------------------------------------------------------------------------------
Life-of-fund
Since 1/16/95 13.03% 6.52% 12.69% 7.69% -- -- 14.35% 1.67%
Life-of-fund
Since 1/17/95 -- -- -- -- 12.93% 9.03% 14.19% 1.26%
- -------------------------------------------------------------------------------
TOTAL RETURN FOR PERIODS ENDED 6/30/95
(most recent calendar quarter)
CLASS A CLASS B CLASS M
NAV POP NAV CDSC NAV POP
- -------------------------------------------------------------------------------
Life-of-fund
Since 1/16/95 14.66% 8.05% 14.18% 9.18% -- --
Since 1/17/95 -- -- -- -- 14.47% 10.52%
- -------------------------------------------------------------------------------
Fund performance data do not take into account any adjustment for taxes payable
on reinvested distributions. The fund began operations 1/16/95 for class A and
B shares, 1/17/95 for class M shares. Performance data represent past results
and will differ for each share class. Investment returns and principal value
will fluctuate so an investor's shares, when sold, may be worth more or less
than their original cost.
<PAGE>
TERMS AND DEFINITIONS
CLASS A SHARES are generally subject to an initial sales charge.
CLASS B SHARES may be subject to a sales charge upon redemption.
CLASS M SHARES have a lower initial sales charge and a higher 12b-1 fee than
class A shares and no sales charge on redemption.
NET ASSET VALUE (NAV) is the value of all your fund's assets, minus any liabili-
ties, 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 maxi-
mum sales charge levied at the time of purchase. POP performance figures shown
here assume the maximum 5.75% sales charge for class A shares and 3.50% for
class M shares.
CONTINGENT DEFERRED SALES CHARGE (CDSC) is a charge applied at the time of the
redemption of class B shares and assumes redemption at the end of the period.
Your fund's CDSC declines from a 5% maximum during the first year to 1% during
the sixth year. After the sixth year, the CDSC no longer applies.
COMPARATIVE BENCHMARKS
STANDARD & POOR'S 500 INDEX is an unmanaged list of common stocks that is fre-
quently used as a general measure of stock market performance. The index assumes
reinvestment of all distributions and does not take into account brokerage co-
mmissions or other costs. The fund's portfolio contains securities that do not
match those in the index.
CONSUMER PRICE INDEX (CPI) is a commonly used measure of inflation; it does not
represent an investment return.
<PAGE>
PORTFOLIO OF INVESTMENTS OWNED
May 31, 1995 (Unaudited)
COMMON STOCKS (93.0%)*
NUMBER OF SHARES VALUE
AEROSPACE AND DEFENSE (0.7%)
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19,145 Boeing Co. $ 1,127,162
AUTOMOTIVE (2.7%)
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14,715 Chrysler Corp. 641,942
29,715 Dana Corp. 839,449
32,890 General Motors Corp. 1,578,720
31,080 Magna International, Inc. Class A 1,181,040
--------------
4,241,151
BASIC INDUSTRIAL PRODUCTS (1.0%)
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16,025 Case Corp. 414,647
19,880 Sundstrand Corp. 1,103,340
--------------
1,517,987
BUILDING AND CONSTRUCTION (0.4%)
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12,065 Armstrong World Industries, Inc. 622,856
BUSINESS EQUIPMENT AND SERVICES (2.5%)
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14,855 IBM Corp. 1,385,229
22,600 Xerox Corp. 2,562,275
--------------
3,947,504
CHEMICALS (6.0%)
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28,255 Du Pont (E.I.) de Nemours & Co., Ltd. 1,917,808
32,495 Eastman Chemical Co. 1,949,700
31,495 Grace (W.R.) & Co. 2,023,554
47,445 Union Carbide Corp. 1,387,766
80,360 Witco Chemical Corp. 2,209,900
--------------
9,488,728
CONGLOMERATES (7.4%)
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33,585 General Motors Corp. Class H 1,368,589
16,635 ITT Corp. 1,861,041
28,980 Johnson Controls, Inc. 1,659,105
50,855 TRW, Inc. 4,011,188
36,520 Tenneco, Inc. 1,752,960
12,765 United Technologies Corp. 968,544
--------------
11,621,427
CONSUMER DURABLE GOODS (0.9%)
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82,660 Maytag Corp. 1,343,225
<PAGE>
COMMON STOCKS (Continued)*
NUMBER OF SHARES VALUE
CONSUMER NON DURABLES (8.3%)
- -------------------------------------------------------------------------------
39,655 American Brands, Inc. $ 1,601,071
51,130 Avon Products, Inc. 3,444,884
68,150 Corning, Inc. 2,180,800
32,540 Kimberly-Clark Corp. 1,952,400
52,420 Philip Morris Cos., Inc. 3,820,108
--------------
12,999,263
CONSUMER SERVICES (2.8%)
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53,575 Dun & Bradstreet Corp. 2,839,475
20,820 McGraw-Hill, Inc. 1,540,680
--------------
4,380,155
ELECTRONICS AND ELECTRICAL EQUIPMENT (2.0%)
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29,360 Eaton Corp. 1,794,630
33,277 Honeywell, Inc. 1,318,601
--------------
3,113,231
ENVIRONMENTAL CONTROL (1.4%)
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80,465 WMX Technologies, Inc. 2,192,671
FOOD AND BEVERAGES (0.7%)
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24,775 Heinz (H.J.) Co. 1,121,069
FOREST PRODUCTS (1.1%)
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38,400 Weyerhaeuser Co. 1,684,800
HEALTH CARE (7.0%)
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21,345 American Home Products Corp. 1,571,526
87,265 Baxter International, Inc. 3,043,367
34,110 Bristol-Myers Squibb Co. 2,264,051
18,835 Lilly (Eli) & Co. 1,405,562
26,770 Upjohn Co. 973,759
20,925 Warner-Lambert Co. 1,734,159
--------------
10,992,424
INSURANCE AND FINANCE (18.5%)
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40,595 AON Corp. 1,481,718
26,475 Aetna Life & Casualty Co. 1,578,572
50,225 American Express Co. 1,789,266
46,875 American General Corp. 1,617,188
57,445 BankAmerica Corp. 3,001,501
36,675 Bankers Trust New York Corp. 2,301,356
68,695 Beneficial Corp. 3,056,928
23,345 CIGNA Corp. 1,745,039
46,875 CoreStates Financial Corp. 1,558,594
17,995 Federal National Mortgage Association 1,673,535
27,935 First Chicago Corp. 1,602,771
46,460 Morgan (J.P.) & Co., Inc. 3,292,853
30,450 NationsBank Corp. 1,724,231
142,825 Reliance Group Holdings, Inc. 910,509
9,205 Wells Fargo & Co. 1,693,720
--------------
29,027,781
<PAGE>
COMMON STOCKS (Continued)*
NUMBER OF SHARES VALUE
OIL AND GAS (8.5%)
- -------------------------------------------------------------------------------
22,065 Amoco Corp. $ 1,508,694
13,185 Atlantic Richfield Co. 1,531,108
44,050 Enron Corp. 1,607,825
21,970 Exxon Corp. 1,568,109
1,530 Imperial Oil Ltd. 59,479
44,990 Occidental Petroleum Corp. 1,034,770
40,180 Phillips Petroleum Co. 1,456,525
21,450 Sonat, Inc. 705,169
10,620 Texaco, Inc. 727,470
63,010 Total Corp. ADS 1,953,310
41,050 Ultramar Corp. 1,092,956
--------------
13,245,415
PHOTOGRAPHY (3.5%)
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73,200 Eastman Kodak Co. 4,419,450
27,935 Polaroid Corp. 1,030,103
--------------
5,449,553
RETAIL (4.2%)
- -------------------------------------------------------------------------------
162,835 K Mart Corp. 2,076,146
54,095 Melville Corporation 2,150,276
29,610 Penney (J.C.) Co., Inc. 1,395,371
17,055 Sears, Roebuck & Co. 961,476
3,165 Woolworth Corp. 48,662
--------------
6,631,931
TRANSPORTATION (3.1%)
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26,995 Conrail, Inc. 1,457,730
22,705 Norfolk Southern Corp. 1,555,293
33,275 Union Pacific Corp. 1,842,603
--------------
4,855,626
UTILITIES (10.3%)
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40,700 American Telephone & Telegraph Corp. 2,065,519
58,845 Cinergy Corp. 1,566,748
71,675 Frontier Corp. 1,630,606
72,335 NYNEX Corp. 3,019,986
64,145 Northeast Utilities 1,531,462
89,880 Sprint Corp. 3,010,980
23,124 Texas Utilities Co. 835,355
58,280 US WEST, Inc. 2,404,050
--------------
16,064,706
--------------
TOTAL COMMON STOCKS (cost $137,447,788) $145,668,665
<PAGE>
CONVERTIBLE PREFERRED STOCKS (3.2)*
NUMBER OF SHARES VALUE
AUTOMOTIVE (0.6%)
- -------------------------------------------------------------------------------
4,020 Chrysler Corp. 144A Ser. A, $4.625 dep. shs. cv. pfd. $ 479,888
4,225 Ford Motor Co. Ser. A, $4.20, cv. pfd. 403,488
--------------
883,376
BASIC INDUSTRIAL PRODUCTS (0.8%)
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17,200 Case Corp. Ser. A, $4.50 cv. pfd. 1,259,900
BUSINESS EQUIPMENT AND SERVICES (0.3%)
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10,100 Unisys Corp. Ser. A, $3.75 cv. pfd. 431,775
INSURANCE AND FINANCE (1.5%)
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16,320 Citicorp Ser. 13, $5.375 cv. pfd. 2,362,320
--------------
TOTAL CONVERTIBLE PREFERRED STOCKS (cost $4,595,891) $ 4,937,371
CONVERTIBLE BONDS AND NOTES (0.3%)* (cost $493,763)
PRINCIPAL AMOUNT VALUE
CELLULAR BROADCASTING (0.3%)
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$1,150,000 Comcast Corp. cv. notes 1 1/8s, 2007 + $ 520,375
SHORT-TERM INVESTMENTS (6.7%)*
PRINCIPAL AMOUNT VALUE
$5,000,000 Federal National Mortgage Assn. 5.88s, July 21, 1995 $ 4,959,167
5,557,000 Interest in $523,899,000 joint repurchase agreement
dated May 31, 1995 with Goldman Sachs & Co., due
June 1, 1995 with respect to various U.S. Treasury
obligations -- maturity value of $5,557,937 for an
effective yield of 6.07% 5,557,937
--------------
TOTAL SHORT-TERM INVESTMENTS (cost $10,517,104) $ 10,517,104
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TOTAL INVESTMENTS (cost $153,054,546)*** $161,643,515
- -------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $156,619,802, which corres-
pond to a net asset value per share of $9.80, $9.77 and $9.78 for class A,
class B and class M shares respectively.
+ Non-income-producing security.
*** The aggregate identified cost on a tax cost basis is $153,054,546, resulting
in gross unrealized appreciation and depreciation of $9,600,687 and
$1,011,718, respectively, or net unrealized appreciation of $8,588,969.
ADS after the name of a holding stands for American Depository Shares, re-
presenting ownership of foreign securities on deposit with a domestic custo-
dian bank.
144A after the name of a security represents those exempt from registration
under Rule 144A of the securities Act of 1933. These securities may be re-
sold in transactions exempt from registration, normally to qualified insti-
tutional buyers.
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995 (Unaudited)
ASSETS
- -------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $153,054,546) (Note 1) $161,643,515
Interest and dividends receivable 607,106
Receivable for shares of the fund sold 4,925,266
Receivable for securities sold 690,098
Unamortized organization expenses (Note 1) 69,977
- -------------------------------------------------------------------------------
TOTAL ASSETS $167,935,962
LIABILITIES
- -------------------------------------------------------------------------------
Payable to subcustodian (Note 3) 4,846
Payable for securities purchased 10,826,676
Payable for shares of the fund repurchased 150,458
Payable for compensation of Manager (Note 3) 166,086
Payable for administrative services (Note 3) 532
Payable for compensation of Trustees (Note 3) 2,164
Payable for distribution fees (Note 3) 86,767
Payable for organization expenses 74,298
Other accrued expenses 4,333
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 11,316,160
- -------------------------------------------------------------------------------
NET ASSETS $156,619,802
REPRESENTED BY
- -------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 5) $146,599,756
Undistributed net investment income (Note 1) 755,150
Accumulated net realized gain on investment transactions (Note 1) 675,927
Net unrealized appreciation of investments 8,588,969
- -------------------------------------------------------------------------------
TOTAL -- REPRESENTING NET ASSETS APPLICABLE TO
CAPITAL SHARES OUTSTANDING $156,619,802
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE
- -------------------------------------------------------------------------------
Net asset value and redemption price of class A shares
($71,790,397 divided by 7,326,898 shares) $ 9.80
Offering price per class A share (100/94.25 of $9.80) * $10.40
Net asset value and offering price of class B shares
($72,806,832 divided by 7,451,690 shares) + $ 9.77
Net asset value and redemption price of class M shares
($12,022,573 divided by 1,228,850 shares) $ 9.78
Offering price per class M share (100/96.50 of $9.78) * $10.13
- -------------------------------------------------------------------------------
* 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.
<PAGE>
STATEMENT OF OPERATIONS
For the period January 16, 1995 (commencement of operations)
to May 31, 1995 (Unaudited)
INVESTMENT INCOME:
- -------------------------------------------------------------------------------
Dividends (net of foreign tax of $8,530) $ 1,019,321
- -------------------------------------------------------------------------------
Interest 133,713
- -------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 1,153,034
- -------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------
Compensation of Manager (Note 3) 166,086
- -------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 3) 25,166
- -------------------------------------------------------------------------------
Compensation of Trustees (Note 3) 2,450
- -------------------------------------------------------------------------------
Reports to shareholders 7,700
- -------------------------------------------------------------------------------
Auditing 6,940
- -------------------------------------------------------------------------------
Legal 4,899
- -------------------------------------------------------------------------------
Postage 1,880
- -------------------------------------------------------------------------------
Distribution fees -- Class A (Note 3) 32,103
- -------------------------------------------------------------------------------
Distribution fees -- Class B (Note 3) 112,276
- -------------------------------------------------------------------------------
Distribution fees -- Class M (Note 3) 14,059
- -------------------------------------------------------------------------------
Administrative services (Note 3) 2,041
- -------------------------------------------------------------------------------
Registration fees 14,696
- -------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,321
- -------------------------------------------------------------------------------
Other 3,267
- -------------------------------------------------------------------------------
TOTAL EXPENSES 397,884
- -------------------------------------------------------------------------------
NET INVESTMENT INCOME 755,150
- -------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 4) 675,927
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 8,588,969
- -------------------------------------------------------------------------------
NET GAIN ON INVESTMENT TRANSACTIONS 9,264,896
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,020,046
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the period
January 16, 1995
(commencement of
operations) to
May 31
1995*
- -------------------------------------------------------------------------------
INCREASE IN NET ASSETS
- -------------------------------------------------------------------------------
Operations:
- -------------------------------------------------------------------------------
Net investment income $ 755,150
- -------------------------------------------------------------------------------
Net realized gain on investments 675,927
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 8,588,969
- -------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 10,020,046
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income --
- -------------------------------------------------------------------------------
Net realized gain on investments --
- -------------------------------------------------------------------------------
Increase from capital share transactions (Note 5) 144,499,756
- -------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS 154,519,802
- -------------------------------------------------------------------------------
NET ASSETS
- -------------------------------------------------------------------------------
Beginning of period (Note 2) 2,100,000
- -------------------------------------------------------------------------------
END OF PERIOD (including undistributed net
investment income of $755,150) $156,619,802
- -------------------------------------------------------------------------------
* Unaudited.
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
FOR THE PERIOD FOR THE PERIOD FOR THE PERIOD
JANUARY 17, 1995 JANUARY 16, 1995 JANUARY 16, 1995
(COMMENCEMENT OF (COMMENCEMENT OF (COMMENCEMENT OF
OPERATIONS) TO OPERATIONS) TO OPERATIONS) TO
MAY 31 MAY 31 MAY 31
1995*+ 1995*+ 1995*+
- --------------------------------------------------------------------------------------------------
CLASS M CLASS B CLASS A
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.66 $8.67 $8.67
- --------------------------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net investment income .08 .08 .10
- --------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.04 1.02 1.03
- --------------------------------------------------------------------------------------------------
TOTAL FROM INVESTMENT ACTIVITIES 1.12 1.10 1.13
- --------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income -- -- --
- --------------------------------------------------------------------------------------------------
Net realized gain on investments -- -- --
- --------------------------------------------------------------------------------------------------
TOTAL DISTRIBUTIONS -- -- --
- --------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.78 $9.77 $9.80
- --------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NAV (%) (a) 12.93(b) 12.69(b) 13.03(b)
- --------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD
(in thousands) $12,023 $72,807 $71,790
- --------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) .67(b) .71(b) .44(b)
- --------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .99(b) .96(b) 1.20(b)
- --------------------------------------------------------------------------------------------------
Portfolio turnover (%) 34.33(b) 34.33(b) 34.33(b)
- --------------------------------------------------------------------------------------------------
<FN>
* Unaudited.
+ Per share net investment income has been determined on the basis of the weighted average number
of shares outstanding during the period.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) Not annualized.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1995 (Unaudited)
NOTE 1
SIGNIFICANT ACCOUNTING POLICIES
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 in-
vesting 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 and class M shares. The fund commenced opera-
tions of class A and class B shares on January 16, 1995 and class M shares on
January 17, 1995. Class A shares are sold with a maximum front-end sales charge
of 5.75%. Class B shares 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 purcha-
se. Class M shares are sold with a maximum front-end sales charge of 3.50% and
an ongoing distribution fee that is higher than class A shares and lower than
class B shares. Expenses of the fund are borne pro-rata by the holders of each
class of shares, except that each class bears expenses unique to that class
(including the distribution fees applicable to such class). Each class votes as
a class only with respect to its own distribution plan or other matters on which
a class vote is required by law or determined by the Trustees. Shares of each
class would receive their pro-rata share of the net assets of the fund, if the
fund were liquidated. In addition, the Trustees declare separate dividends on
each class of shares.
The following is a summary of significant accounting policies consistently fo-
llowed by the fund in the preparation of its financial statements. The policies
are in conformity with generally accepted accounting principles.
A) SECURITY VALUATION Investments for which market quotations are readily avai-
lable are stated at market value, which is determined using the last reported
sale price, or, if no sales are reported -- as in the case of some securities
traded over-the-counter -- the last reported bid price, except that certain U.S.
government obligations are stated at the mean between the bid and asked prices.
Short-term investments having remaining maturities of 60 days or less are stated
at amortized cost which approximates market, and other investments are stated
at fair value following procedures approved by the Trustees.
B) JOINT TRADING ACCOUNT Pursuant to an exemptive order issued by the Securities
and Exchange Commission, the fund may transfer uninvested cash balances into a
joint trading account, along with the cash and certain other accounts of other
registered investment companies managed by Putnam Investment Management, Inc.,
("Putnam Management") the fund's Manager, a wholly-owned subsidiary of Putnam
Investments, Inc. These balances may be invested in one or more repurchase
agreements and/or short-term money market instruments.
<PAGE>
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. The fund's Manager is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME Security transactions are
accounted for on the trade date (date the order to buy or sell is executed).
Interest income is recorded on the accrual basis and 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) FEDERAL TAXES It is the policy of the fund to distribute all of its income
within the prescribed time and otherwise comply with the provisions of the In-
ternal 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. Therefo-
re, no provision has been made for federal taxes on income, capital gains or un-
realized appreciation of securities held and excise tax on income and capital
gains.
F) DISTRIBUTIONS TO SHAREHOLDERS Distributions to shareholders are recorded by
the fund on the ex-dividend date.
The character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. These differences may include treatment of dividend income, gains
and losses realized on paydowns for mortgage backed securities, amortization of
market discounts and certain gains and losses on foreign currency transactions.
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.
G) UNAMORTIZED ORGANIZATION EXPENSES Expenses incurred by the fund in connection
with its organization, its registration with the Securities and Exchange Commi-
ssion and with various states and the initial public offering of its shares were
$74,298. These expenses are being amortized on a straight-line basis over a
five-year period. The fund will reimburse Putnam Management for the payment.
NOTE 2
INITIAL CAPITALIZATION AND OFFERING OF SHARES
The fund was established as a Massachusetts business trust under the laws of the
Commonwealth of Massachusetts on October 5, 1994.
During the period October 5, 1994 to January 16, 1995, the fund had no opera-
tions other than those related to organizational matters, including the initial
capital contributions of $33,334, $33,333 and $33,333 for class A, class B and
class M, respectively, and the issuance of 3,922 shares for each class to Putnam
Mutual Funds Corp. on November 30, 1994. On January 3, 1995, Putnam Mutual
Funds Corp. made subsequent capital contributions of $666,666, $666,667
<PAGE>
and $666,667 for class A, class B and class M, respectively, and received
78,431 shares for each class.
NOTE 3
MANAGEMENT FEE, ADMINISTRATIVE SERVICES, AND OTHER TRANSACTIONS
Compensation of Putnam Management, for management and investment advisory servi-
ces is paid quarterly based on the average net assets of the fund for the quar-
ter. Such fee is based on the following annual rates: 0.65% of the first $500
million of average net assets, 0.55% of the next $500 million, 0.50% of the next
$500 million, 0.45% of the next $5 billion, 0.425% of the next $5 billion,
0.405% of the next $5 billion, 0.39% of the next $5 billion and 0.38% of any
excess thereafter.
The fund also reimburses the Manager for the compensation and related expenses
of certain officers of the fund and their staff who provide administrative ser-
vices to the fund. The aggregate amount of all such reimbursements is determined
annually by the Trustees.
Trustees of the fund receive an annual Trustee's fee of $820, and an additional
fee for each Trustees' meeting attended. Trustees who are not interested persons
of the Manager and who serve on committees of the Trustees receive additional
fees for attendance at certain committee meetings.
Custodial functions for the fund are being provided by Putnam Fiduciary Trust
Company (PFTC), a subsidiary of Putnam Investments. Investor servicing agent
functions are provided by Putnam Investor Services, a division of PFTC. Inves-
tor servicing and custodian fees reported in the statement of operations for the
period ended May 31, 1995 have been reduced by credits allowed by PFTC.
As part of the custodial contract between Putnam Fiduciary Trust Company and the
subcustodian bank, the subcustodian has a lien on the securities of the fund to
the extent permitted by the fund's investment restrictions to cover any advances
made by the subcustodian for the settlement of securities purchased by the
fund. At May 31, 1995, the payable to subcustodian represents the amount due
for cash advanced for the settlement of a security purchased.
The fund has adopted distribution plans (the "Plans") with respect to its class
A, class B and class M shares pursuant to Rule 12b-1 under the Investment Compa-
ny Act of 1940. The purpose of the Plans is to compensate Putnam Mutual Funds
Corp., a wholly-owned subsidiary of Putnam Investments Inc., for services provi-
ded and expenses incurred by it in distributing shares of the fund. The Plans
provide for payments by the fund to Putnam Mutual Funds Corp. at an annual rate
up to 0.35%, 1.00% and 1.00% of the average net assets attributable to class A,
class B and class M shares, respectively. The Trustees have approved payment by
the fund at an annual rate of 0.25%, 1.00% and 0.75% of the average net assets
attributable to class A, class B and class M shares, respectively.
For the period ended May 31, 1995, Putnam Mutual Funds Corp., acting
<PAGE>
as underwriter received net commissions of $137,607 from the sale of class A
shares and $17,612 in commissions from the sale of class M shares. There was
$18,876 in contingent deferred sales charges from redemptions of class B shares.
A deferred sales charge of up to 1% is assessed on certain redemptions of class
A shares purchased as part of an investment of $1 million or more. For the pe-
riod ended May 31, 1995, Putnam Mutual Funds Corp., acting as underwriter recei-
ved no monies on class A redemptions.
NOTE 4
PURCHASES AND SALES OF SECURITIES
During the period ended May 31, 1995, purchases and sales of investment securi-
ties other than short-term investments aggregated $167,234,527 and $25,372,956,
respectively. There were no purchases or sales of U.S. government obligations.
In determining the net gain or loss on securities sold, the cost of securities
has been determined on the identified cost basis.
NOTE 5
CAPITAL SHARES
At May 31, 1995, there was an unlimited number of shares of beneficial interest
authorized divided into three classes, designated class A, class B and class M
capital stock. Transactions in capital shares were as follows:
FOR THE PERIOD
JANUARY 16, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1995
CLASS A SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 7,564,403 $69,111,266
- -------------------------------------------------------------------------------
Shares repurchased (319,858) (2,972,478)
- -------------------------------------------------------------------------------
NET INCREASE 7,244,545 $66,138,788
- -------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 16, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1995
CLASS B SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 7,661,905 $70,466,480
- -------------------------------------------------------------------------------
Shares repurchased (292,568) (2,700,249)
- -------------------------------------------------------------------------------
NET INCREASE 7,369,337 $67,766,231
- -------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 17, 1995
(COMMENCEMENT OF
OPERATIONS) TO
MAY 31, 1995
CLASS M SHARES AMOUNT
- -------------------------------------------------------------------------------
Shares sold 1,170,912 $10,825,136
- -------------------------------------------------------------------------------
Shares repurchased (24,415) (230,399)
- -------------------------------------------------------------------------------
Net increase 1,146,497 $10,594,737
- -------------------------------------------------------------------------------
<PAGE>
OUR COMMITMENT TO QUALITY SERVICE
CHOOSE AWARD-WINNING SERVICE.
Putnam Investor Services has won the DALBAR Quality Tested Service Seal for the
past five years, through 1994. DALBAR, an independent research firm, ran more
than 10,000 tests of 38 shareholder service components. In every category,
Putnam outperformed the industry standard.
HELP YOUR INVESTMENT GROW.
Set up a systematic program for investing with as little as $25 a month from a
Putnam fund or from your checking or savings account. *
SWITCH FUNDS EASILY.
You can move money from one account to another with the same class of shares
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 their original cost.
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 repre-
sentative.
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.
* Regular investing, of course, does not guarantee a profit or protect against
a loss in a declining market. Investors should consider their ability to con-
tinue purchasing shares during periods of low price levels.
<PAGE>
FUND INFORMATION
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman William F. Pounds, Vice Chairman
Jameson Adkins Baxter Hans H. Estin
John A. Hill Elizabeth T. Kennan
Lawrence J. Lasser Robert E. Patterson
Donald S. Perkins George Putnam, III
Eli Shapiro A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam Charles E. Porter
President Executive Vice President
Patricia C. Flaherty Lawrence J. Lasser
Senior Vice President Vice President
Gordon H. Silver Vice President
Peter Carman Vice President
Brett C. Browchuk Vice President
Thomas V. Reilly Vice President
Anthony I. Kreisel Vice President and Fund Manager
William N. Shiebler Vice President
Paul M. O'Neil Vice President
John D. Hughes Vice President and Treasurer
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Growth and Income
Fund II. It may also be used as sales literature when preceded or accompanied by
the current prospectus, which gives details of sales charges, investment objec-
tives 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.
SHARES OF MUTUAL FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR EN-
DORSED BY, ANY FINANCIAL INSTITUTION, ARE NOT INSURED BY THE FEDERAL DEPOSIT IN-
SURANCE CORPORATION (FDIC), THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY, AND
INVOLVE RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
<PAGE>
<PAGE>
---------------
PUTNAM INVESTMENTS Bulk Rate
U.S. Postage
THE PUTNAM FUNDS PAID
One Post Office Square Putnam
Boston, Massachusetts 02109 Investments
---------------
18995-949/990/096
<PAGE>
<PAGE>
APPENDIX TO FORM N-30D FILINGS TO DESCRIBE DIFFERENCES BETWEEN PRINTED AND
EDGAR-FILED TEXTS:
(1) Boldface typeface is displayed with capital letters, italic typeface is
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(2) Because the printed page breaks are not reflected, certain tabular and
columnar headings and symbols are displayed differently in this filing.
(3) Bullet points and similar graphic signals are omitted.
(4) Page numbering has been omitted.
(5) The trademark symbol has been replaced by (TM).
(6) The copyright symbol has been replaced by (C).
(7) The registered mark symbol has been replaced by (R).
(8) The dagger symbol has been replaced by +
(9) The double dagger symbol has been replaced by ++
(10) The section symbol has been replaced by +++
