Putnam
Growth and
Income
Fund II
SEMIANNUAL REPORT
May 31, 1997
[LOGO: BOSTON * LONDON * TOKYO]
Fund highlights
* "Clearly, value investing -- for any size company -- has truly been
an 'eat well, sleep well' philosophy."
-- Bloomberg Personal, March/April 1997
* "No matter what happens in the stock market going forward, we will
stick to our investment discipline of ascertaining the impact of positive
fundamental change on long-term earnings power and a stock's relative
cheapness."
-- Anthony Kreisel, manager
Putnam Growth and Income Fund II
CONTENTS
4 Report from Putnam Management
9 Fund performance summary
12 Portfolio holdings
17 Financial statements
From the Chairman
[GRAPHIC OMITTED: PHOTO OF GEORGE PUTNAM]
(copyright) Karsh, Ottawa
Dear Shareholder:
As Putnam Growth and Income Fund II reached the midpoint of its third fiscal
year on May 31, 1997, the young fund responded in textbook fashion to the
challenging market environment in which it operated. Its time-tested strategy,
used for decades by long-established Putnam funds with similar objectives,
often calls for sacrificing short-term results in order to position its
portfolio for greater gains over the long term.
The first half of fiscal 1997 was just such a period for the stocks in which
your fund typically invests. Fund Manager Anthony Kreisel refused to follow
the crowd into securities enjoying current favor that failed to fit the fund's
profile. Instead, he selected investments that, in his view, had the best
prospects of meeting the fund's long-term objectives.
In the following report, Tony offers insights into his tactical decisions in
positioning your fund portfolio. He also provides an in-depth discussion of
performance to date and the outlook for the remainder of fiscal 1997.
Respectfully yours,
/S/GEORGE PUTNAM
George Putnam
Chairman of the Trustees
July 16, 1997
Report from the Fund Manager
Anthony I. Kreisel
One of the greatest benefits associated with the value-investing style is the
protection it can provide during market declines. Since its founding in
January 1995, Putnam Growth and Income Fund II has been quite successful in
its search for undervalued companies with the potential for positive change.
But thanks to a scorching bull market that has favored a narrow band of issues
over the past year, your fund had not had the opportunity to demonstrate its
capacity for resilience.
However, midway through the fund's most recent semiannual period -- which
ended on May 31, 1997 -- the market withstood a correction. As the report that
follows will show, the fund's investment discipline helped it weather a rocky
period in the marketplace while steering it toward stocks we believe have good
long-term potential. For the period, the fund's class A shares provided a
total return of 11.39% at net asset value (4.99% at public offering price).
That performance exceeded the 10.15% average total return of the funds in the
Lipper Analytical Services' growth and income category over the same period.
Additional performance results for class A shares, as well as results for
other share classes and comparative indexes, are listed in the performance
summary that begins on page 9.
* MARKET SUSTAINS VOLATILITY BUT EMERGES STRONGER THAN EVER
The stock market's positive returns for the period mask the abrupt day-to-day
changes of many market indexes. For much of the period, the market was led by
large, highly liquid companies believed to have reliable earnings growth.
March, however, brought a month-long correction in stock prices. In a widely
anticipated move, the Federal Reserve Board raised the target for the federal
funds rate one quarter of a percentage point to 5.5% in March. Investors,
anticipating further changes in interest rates and fearing the worst for
current and future corporate earnings, helped drive the Dow Jones Industrial
Average down nearly 10% by April 11 from its March 11 high. As expected, your
fund's strategy of targeting less volatile investments enabled it to weather
the March-April correction slightly better than the Standard & Poor's 500
Index(registered trademark). From March 11 to April 11, the fund was down
8.55% at net asset value, while the S&P 500 lost 8.93%.
Later on, however, when many corporate sectors announced strong first-quarter
earnings, the market began to recover amid optimism that the economy will
continue to grow steadily with few signs of inflation. This idea was further
reinforced by a surge in bond prices as a result of a positive interpretation
of economic data.
* SEVERAL SUCCESS STORIES MARK PERIOD
During the period, several of the fund's long-time holdings fulfilled our
expectations. One such company was Warner-Lambert. When we bought the stock,
we thought either that it would be an attractive takeover candidate or two of
its new products would rejuvenate the company's earnings. As matters turned
out, Food and Drug Administration approval for the new products came more
quickly than we expected and initial demand for the drugs has been strong.
Along with the correction in the stock market, we witnessed a drop in many
segments of the technology area. We saw the decline as an opportunity to buy
more shares of companies we favored and, as we expected, many
technology-related companies recovered by end of the period. One company that
performed well was Texas Instruments. This company epitomized the 1990s wave
of corporate restructuring when it announced sale of its defense unit. In
addition, a rebound in semiconductor prices on the heels of a worldwide supply
glut also helped boost the price of this electronics giant's stock.
[GRAPHIC HORIZONTAL BAR CHART OMITTED: TOP INDUSTRY SECTORS]
TOP INDUSTRY SECTORS*
Insurance and
finance 16.1%
Oil and gas 9.5%
Utilities 7.5%
Consumer
nondurables 6.7%
Basic industrial
products 4.4%
Footnote reads:
* Based on net assets as of 5/31/97. Holdings will vary over time.
One of the most well-publicized comebacks of the period -- and probably the
decade -- was IBM. Prior to the close of the reporting period, IBM completed a
long march to respectability as it broke a record intraday high of $175.87 set
in 1987. This is up from lows just under $50 in 1993 when the current chairman
and chief executive officer, Louis Gerstner Jr., was appointed. At that time,
we believed that if the new management could improve returns, more free cash
flow could be generated. Then the company would have the opportunity to
increase shareholder value by undertaking programs such as raising the
dividend, making strategic acquisitions, or more importantly in our opinion,
buying back stock. The company has done all three, but IBM shareholders have
benefited particularly from the company's aggressive stock buyback program.
Additionally, prior to the end of the period, the stock was split two for one.
While these holdings, along with others discussed in this report, were viewed
favorably at the end of the fiscal period, all are subject to review and
adjustment in accordance with the fund's investment strategy and may vary in
the future.
* MANEUVERING THROUGH A MARKET MARKED BY FREQUENT SECTOR ROTATION
Part of the fund's performance during the period was driven by our avoidance
of the many noncyclical, moderate-growth companies favored by the market.
These companies began the period at expensive levels and were even more
expensive by the end of May. Some examples include pharmaceuticals, beverage
companies, and cosmetics. Because of their stocks' lofty price levels, the
companies in these sectors were often harshly punished by Wall Street for the
slightest earnings disappointment.
[GRAPHIC OMITTED: TOP 10 HOLDINGS]
TOP 10 HOLDINGS
International Business Machines Corp.
Computers
Xerox Corp.
Business equipment and services
Sprint Corp.
Utilities
Eastman Kodak Co.
Photographic equipment
J.P. Morgan & Co., Inc.
Multinational banking and finance
Kimberly-Clark Corp.
Consumer nondurables
PNC Bank Corp.
Commercial banking
Minnesota Mining & Manufacturing
Industrial products
Baxter International
Medical supplies and devices
Pharmacia & Upjohn, Inc.
Pharmaceuticals
Footnote reads:
These holdings represent 18.6% of the fund's assets as of 5/31/97. Portfolio
holdings will vary over time.
Shareholders who scan the fund's holdings will find the names of some
companies within these sectors. That's because we had acquired these stocks
when they appeared extremely undervalued compared with other stocks in their
respective industries. One example was Pharmacia & Upjohn, Inc., one of the
world's largest pharmaceutical companies. The company's pipeline of new
products had all but dried up, much of its profits were hurt by the weak
Japanese yen, and no chairman was in place for several months. We believe
these setbacks have brought the stock price down to levels that do not reflect
its long-term potential. We are confident in the abilities of the new chairman
and expect the price to recover as the company resumes its product development
efforts.
Unfortunately, it often takes time before some companies that we believe hold
the most value fulfill their long-term potential. Such companies often go
unrecognized by the market at large because of concerns about the industry
sector in which they fall. For example, telecommunications and utility
companies have been hurt by concerns over deregulation. Cyclical companies in
autos and basic industries have also suffered as perceptions of where we are
in the economic cycle have changed. Thus, our holdings in these industries
have not yet made significant contributions to performance.
* CONTINUED FOCUS ON GLOBALIZATION AND LONG-TERM PERFORMANCE
We will continue to highlight U.S-based multinational companies as an
important theme for the fund. Historically, geographic expansion has proven to
be the most cost-effective route toward meaningful corporate growth because
the development of additional distribution channels is not as demanding as the
development of new products or technologies.
For some time, the stock market has been led by large, highly liquid companies
believed to have reliable earnings growth. As we have stated in earlier
reports, your fund will not participate to any great extent in this type of
market because, by virtue of its objective, the fund typically will not own
stocks in these kinds of companies. Market-leading companies are generally too
well known and their valuation levels too high to make them candidates for
your fund's portfolio. Instead, we will continue to focus on properly
executing our investment style in order to provide solid long-term returns
with reduced volatility.
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 5/31/97, there is no guarantee the fund will continue to hold
these securities in the future.
Performance summary
Performance should always be considered in light of a fund's investment
strategy. Putnam Growth and Income Fund II is designed for investors
seeking primarily capital growth, but also current income potential
through common stocks.
TOTAL RETURNS FOR PERIODS ENDED 5/31/97
Class A Class B Class M
(inception date) (1/5/95) (1/5/95) (1/5/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 11.39% 4.99% 11.00% 6.00% 11.10% 7.24%
- ------------------------------------------------------------------------------
1 year 23.97 16.81 23.10 18.10 23.32 19.00
- ------------------------------------------------------------------------------
Life of class 81.80 71.35 78.50 75.50 79.56 73.26
Annual average 28.28 25.16 27.31 26.41 27.62 25.74
- ------------------------------------------------------------------------------
COMPARATIVE INDEX RETURNS FOR PERIODS ENDED 5/31/97
S&P 500 Consumer
Index Price Index
- ------------------------------------------------------------------------------
6 months 13.14% 0.95%
- ------------------------------------------------------------------------------
1 year 29.40 2.23
- ------------------------------------------------------------------------------
Life of class 95.18 6.95
Annual average 31.91 2.82
- ------------------------------------------------------------------------------
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 periods reflect the applicable contingent deferred
sales charge (CDSC), which is 5% in the first year, declining to 1% in the
sixth year, and eliminated thereafter. All returns assume reinvestment of
distributions at NAV and represent past performance; they do not guarantee
future results. Investment return and principal value will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
PRICE AND DISTRIBUTION INFORMATION
6 months ended 5/31/97
Class A Class B Class M
- ------------------------------------------------------------------------------
Distributions (number) 2 2 2
- ------------------------------------------------------------------------------
Income $0.120 $0.076 $0.091
- ------------------------------------------------------------------------------
Capital gains
- ------------------------------------------------------------------------------
Long-term 0.218 0.218 0.218
- ------------------------------------------------------------------------------
Short-term 0.493 0.493 0.493
- ------------------------------------------------------------------------------
Total $0.831 $0.787 $0.802
- ------------------------------------------------------------------------------
Share value: NAV POP NAV NAV POP
- ------------------------------------------------------------------------------
11/30/96 $13.11 $13.91 $13.03 $13.06 $13.53
- ------------------------------------------------------------------------------
5/31/97 13.66 14.49 13.57 13.60 14.09
- ------------------------------------------------------------------------------
Current return
- ------------------------------------------------------------------------------
End of period
- ------------------------------------------------------------------------------
Current dividend rate1 1.76% 1.66% 1.15% 1.35% 1.31%
- ------------------------------------------------------------------------------
Current 30-day SEC yield2 1.60 1.51 0.87 1.11 1.07
- ------------------------------------------------------------------------------
1Income portion of most recent distribution, annualized and divided by NAV
or POP at end of period.
2Based on investment income, calculated using SEC guidelines.
TOTAL RETURN FOR PERIODS ENDED 6/30/97
(most recent calendar quarter)
Class A Class B Class M
(inception date) (1/5/95) (1/5/95) (1/5/95)
NAV POP NAV CDSC NAV POP
- ------------------------------------------------------------------------------
6 months 16.34% 9.69% 15.98% 10.98% 16.14% 12.09%
- ------------------------------------------------------------------------------
1 year 28.56 21.18 27.56 22.56 27.97 23.47
- ------------------------------------------------------------------------------
Life of class 88.20 77.39 84.66 81.66 85.96 79.44
Annual average 29.04 26.00 28.06 27.22 28.42 26.59
- ------------------------------------------------------------------------------
Performance data represent past results, do not reflect future
performance, and will differ for each share class. Investment returns and
net asset value will fluctuate so that an investor's shares, when sold,
may be worth more or less than their original cost.
TERMS AND DEFINITIONS
Total return shows how the value of the fund's shares changed over time,
assuming you held the shares through the entire period and reinvested all
distributions in the fund.
Class A shares are generally subject to an initial sales charge.
Class B shares may be subject to a sales charge upon redemption.
Class M shares have a lower initial sales charge and a higher 12b-1 fee
than class A shares and no sales charge on redemption.
Net asset value (NAV) is the value of all your fund's assets, minus any
liabilities, divided by the number of outstanding shares, not including
any initial or contingent deferred sales charge.
Public offering price (POP) is the price of a mutual fund share plus the
maximum sales charge levied at the time of purchase. POP performance
figures shown here assume the maximum 5.75% sales charge for class A
shares and 3.50% for class M shares.
Contingent deferred sales charge (CDSC) is a charge applied at the time of
the redemption of class B shares and assumes redemption at the end of the
period. Your fund's CDSC declines from a 5% maximum during the first year
to 1% during the sixth year. After the sixth year, the CDSC no longer
applies.
COMPARATIVE BENCHMARKS
Standard & Poor's 500 Stock Index is an index of common stocks frequently
used as a general measure of stock market performance. The index assumes
reinvestment of all distributions and interest payments and does not take
in account brokerage fees or taxes. Securities in the fund do not match
those in the indexes and performance of the fund will differ. It is not
possible to invest directly in an index.
Consumer Price Index (CPI ) is a commonly used measure of inflation; it
does not represent an investment return.
Portfolio of investments owned
May 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
COMMON STOCKS (96.0%) *
NUMBER OF SHARES VALUE
<S> <C> <C> <C>
Aerospace and Defense (1.0%)
- ------------------------------------------------------------------------------------------------------------
228,310 Northrop Grumman Corp. $ 19,349,273
Automotive (3.8%)
- ------------------------------------------------------------------------------------------------------------
320,455 Dana Corp. 11,576,437
627,050 Ford Motor Co. 23,514,375
520,640 General Motors Corp. 29,806,640
171,380 Goodyear Tire & Rubber Co. (The) 10,025,730
--------------
74,923,182
Basic Industrial Products (4.4%)
- ------------------------------------------------------------------------------------------------------------
387,100 Cooper Industries, Inc. 19,742,100
299,480 General Signal Corp. 12,615,595
392,000 Minnesota Mining & Manufacturing Co. 35,966,000
808,500 New Holland N.V. (Netherlands) 19,808,250
--------------
88,131,945
Building and Construction (2.0%)
- ------------------------------------------------------------------------------------------------------------
257,180 Armstrong World Industries, Inc. 17,488,240
554,770 Masco Corp. 21,566,684
--------------
39,054,924
Business Equipment and Services (3.1%)
- ------------------------------------------------------------------------------------------------------------
421,440 Hewlett-Packard Co. 21,704,160
599,265 Xerox Corp. 40,600,204
--------------
62,304,364
Chemicals (3.5%)
- ------------------------------------------------------------------------------------------------------------
173,770 du Pont (E.I.) de Nemours & Co., Ltd. 18,919,209
317,289 Eastman Chemical Co. 18,878,696
155,200 Hercules, Inc. 7,275,000
651,000 Witco Chemical Corp. 24,087,000
--------------
69,159,905
Computer Services and Software (3.9%)
- ------------------------------------------------------------------------------------------------------------
375,475 Computer Associates Intl., Inc. 20,557,256
472,280 IBM Corp. 40,852,542
517,140 NCR Corp. + 16,807,050
--------------
78,216,848
Conglomerates (3.2%)
- ------------------------------------------------------------------------------------------------------------
305,655 General Motors Corp. Class H 16,849,232
123,388 ITT Industries, Inc. + 3,053,853
575,440 TRW, Inc. 30,786,040
163,217 United Technologies Corp. 13,118,566
--------------
63,807,691
Consumer Durable Goods (0.7%)
- ------------------------------------------------------------------------------------------------------------
301,230 Whirlpool Corp. 15,023,846
Consumer Non Durables (6.7%)
- ------------------------------------------------------------------------------------------------------------
439,550 American Brands, Inc. 21,537,950
302,900 Colgate-Palmolive Co. 18,779,800
736,660 Kimberly-Clark Corp. 36,925,083
582,940 Philip Morris Cos., Inc. 25,649,360
305,255 RJR Nabisco Holdings Corp. + 9,882,631
592,800 Tupperware Corp. + 21,489,000
--------------
134,263,824
Electronics and Electrical Equipment (4.0%)
- ------------------------------------------------------------------------------------------------------------
247,275 Eaton Corp. 19,720,181
353,000 Motorola, Inc. 23,430,375
264,350 Rockwell International Corp. + 17,050,575
208,475 Texas Instruments, Inc. 18,736,691
--------------
78,937,822
Environmental Control (0.5%)
- ------------------------------------------------------------------------------------------------------------
322,625 Waste Management, Inc. + 10,243,344
Food and Beverages (3.3%)
- ------------------------------------------------------------------------------------------------------------
218,960 Anheuser-Busch Cos., Inc. 9,387,910
291,570 General Mills, Inc. 18,441,803
448,350 Sara Lee Corp. 18,326,306
827,700 Whitman Corporation 19,968,263
--------------
66,124,282
Forest Products (1.9%)
- ------------------------------------------------------------------------------------------------------------
165,950 Temple Inland, Inc. 10,039,975
544,930 Weyerhaeuser Co. 27,178,384
--------------
37,218,359
Insurance and Finance (16.1%)
- ------------------------------------------------------------------------------------------------------------
448,450 Ahmanson (H.F.) & Co. 18,274,338
447,020 American General Corp. 19,780,635
466,960 AON Corp. 22,764,300
436,100 Banc One Corp. 18,861,325
218,435 Bankers Trust New York Corp. 18,485,062
182,660 Beneficial Corp. 11,735,905
45,946 CIGNA Corp. 7,983,118
104,480 First Tennessee National Corp. 4,714,660
430,110 Fleet Financial Group, Inc. 26,290,474
163,700 Huntington Bancshares, Inc. 4,644,988
316,630 Keycorp 17,216,756
122,900 Mellon Bank Corp. 10,753,750
136,310 Mercantile Bancorpation, Inc. 8,042,290
348,630 Morgan (J.P.) & Co., Inc. 37,477,725
96,900 Old Kent Financial Corp. 5,172,038
864,700 PNC Bank Corp. 36,209,313
113,400 Regions Financial Corp. 6,775,650
256,450 Salomon, Inc. 13,752,131
197,390 Summit Bancorp 9,746,131
1,007,310 USF&G Corp. 21,657,165
--------------
320,337,754
Medical Supplies and Devices (1.7%)
- ------------------------------------------------------------------------------------------------------------
634,560 Baxter International, Inc. 33,473,040
Metals and Mining (0.9%)
- ------------------------------------------------------------------------------------------------------------
678,088 Freeport-McMoRan Copper & Gold Co., Inc. Class A 18,816,942
Oil and Gas (9.5%)
- ------------------------------------------------------------------------------------------------------------
283,495 Amoco Corp. 25,337,366
33,430 Atlantic Richfield Co. 4,864,065
148,520 British Petroleum PLC ADR (United Kingdom) 21,516,835
271,644 Coastal Corp. 13,616,156
506,340 Elf Aquitane ADR (France) 26,392,973
337,728 Exxon Corp. 20,010,384
160,620 Mobil Corp. 22,466,723
749,830 Occidental Petroleum Corp. 17,433,548
331,970 PanEnergy Corp. 15,519,598
443,750 Total Corp. ADR (France) 20,246,094
35,000 YPF S.A. ADR (Argentina) 1,050,000
--------------
188,453,742
Packaging and Containers (2.0%)
- ------------------------------------------------------------------------------------------------------------
334,643 Crown Cork & Seal Co., Inc. 19,492,955
669,755 Owens-Illinois, Inc. + 20,678,686
--------------
40,171,641
Pharmaceuticals (3.8%)
- ------------------------------------------------------------------------------------------------------------
303,612 American Home Products Corp. 23,150,415
270,320 Bristol-Myers Squibb Co. 19,834,730
966,625 Pharmacia & Upjohn, Inc. 33,469,391
--------------
76,454,536
Photography (3.6%)
- ------------------------------------------------------------------------------------------------------------
458,255 Eastman Kodak Co. 37,977,883
654,925 Polaroid Corp. 33,401,175
--------------
71,379,058
Publishing (1.7%)
- ------------------------------------------------------------------------------------------------------------
366,810 McGraw-Hill, Inc. 20,036,996
256,950 Times Mirror Co. Class A 14,421,319
--------------
34,458,315
Retail (3.3%)
- ------------------------------------------------------------------------------------------------------------
320,500 Lowe's Cos., Inc. 12,619,688
1,808,770 K mart Corp. 25,322,780
197,370 Penney (J.C.) Co., Inc. 10,164,555
356,882 Sears, Roebuck & Co. 17,531,828
--------------
65,638,851
Transportation (3.9%)
- ------------------------------------------------------------------------------------------------------------
237,410 Canadian National Railway Co. (Canada) + 9,911,868
164,290 Delta Air Lines, Inc. 15,402,188
194,820 Norfolk Southern Corp. 18,921,893
467,180 Ryder System, Inc. 15,475,338
262,315 Union Pacific Corp. 17,771,841
--------------
77,483,128
Utilities (7.5%)
- ------------------------------------------------------------------------------------------------------------
344,935 American Telephone & Telegraph Co. 12,719,478
221,020 Ameritech Corp. 14,476,810
525,880 BellSouth Corp. 23,861,805
491,300 GTE Corp. 21,678,613
434,680 SBC Communications, Inc. 25,428,780
786,940 Sprint Corp. 38,461,693
362,200 US West, Inc. 13,265,575
--------------
149,892,754
--------------
Total Common Stocks (cost $1,659,343,173) $1,913,319,370
CONVERTIBLE PREFERRED STOCKS (0.8%) *(cost $13,722,753)
NUMBER OF SHARES VALUE
- ------------------------------------------------------------------------------------------------------------
113,030 Case Corp. Ser. A, $4.50 cum. cv. pfd. $ 15,993,745
SHORT-TERM INVESTMENTS (3.1%) *(cost $61,522,861)
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------------------------------
61,504,000 Interest in $386,564,000 joint repurchase agreement
dated May 30, 1997 with UBS Securities due June 2, 1997
with respect to various U.S. Treasury obligations --
maturity value of $61,532,292 for an effective yield
of 5.52% $ 61,522,861
- ------------------------------------------------------------------------------------------------------------
Total Investments (cost $1,734,588,787) *** $1,990,835,976
- ------------------------------------------------------------------------------------------------------------
* Percentages indicated are based on net assets of $1,993,917,576.
*** The aggregate identified cost on a tax basis is $1,735,466,526, resulting in gross unrealized
appreciation and depreciation of $270,482,678 and $15,113,228, respectively, or net unrealized
appreciation of $255,369,450.
+ Non-income-producing security.
ADR after the name of a foreign holding stands for American Depository Receipt 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, 1997 (Unaudited)
<S> <C>
Assets
- ---------------------------------------------------------------------------------------------------
Investments in securities, at value
(identified cost $1,734,588,787) (Note 1) $ 1,990,835,976
- ---------------------------------------------------------------------------------------------------
Cash 255
- ---------------------------------------------------------------------------------------------------
Dividends and other receivables 5,326,206
- ---------------------------------------------------------------------------------------------------
Receivable for shares of the fund sold 9,420,626
- ---------------------------------------------------------------------------------------------------
Receivable for securities sold 37,893,294
- ---------------------------------------------------------------------------------------------------
Unamortized organization expenses (Note 1) 61,308
- ---------------------------------------------------------------------------------------------------
Total assets 2,043,537,665
Liabilities
- ---------------------------------------------------------------------------------------------------
Payable for securities purchased 43,575,698
- ---------------------------------------------------------------------------------------------------
Payable for shares of the fund repurchased 1,499,480
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Manager (Note 2) 2,512,862
- ---------------------------------------------------------------------------------------------------
Payable for investor servicing and custodian fees (Note 2) 377,814
- ---------------------------------------------------------------------------------------------------
Payable for compensation of Trustees (Note 2) 16,161
- ---------------------------------------------------------------------------------------------------
Payable for administrative services (Note 2) 3,806
- ---------------------------------------------------------------------------------------------------
Payable for distribution fees (Note 2) 1,313,418
- ---------------------------------------------------------------------------------------------------
Payable for organization expenses (Note 1) 74,298
- ---------------------------------------------------------------------------------------------------
Other accrued expenses 246,552
- ---------------------------------------------------------------------------------------------------
Total liabilities 49,620,089
- ---------------------------------------------------------------------------------------------------
Net assets $1,993,917,576
Represented by
- ---------------------------------------------------------------------------------------------------
Paid-in capital (Notes 1 and 4) $1,643,273,360
- ---------------------------------------------------------------------------------------------------
Undistributed net investment income (Note 1) 753,212
- ---------------------------------------------------------------------------------------------------
Accumulated net realized gain on investment (Note 1) 93,643,815
- ---------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 256,247,189
- ---------------------------------------------------------------------------------------------------
Total -- Representing net assets applicable to
capital shares outstanding $1,993,917,576
Computation of net asset value and offering price
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class A share
($848,286,777 divided by 62,096,669 shares) $13.66
- ---------------------------------------------------------------------------------------------------
Offering price per class A share (100/94.25 of $13.66)* $14.49
- ---------------------------------------------------------------------------------------------------
Net asset value and offering price per class B share
($1,020,437,551 divided by 75,212,603 shares)** $13.57
- ---------------------------------------------------------------------------------------------------
Net asset value and redemption price per class M share
($125,193,248 divided by 9,202,544 shares) $13.60
- ---------------------------------------------------------------------------------------------------
Offering price per class M share (100/96.50 of $13.60)* $14.09
- ---------------------------------------------------------------------------------------------------
* 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 31,1997 (Unaudited)
<S> <C>
Investment income:
- --------------------------------------------------------------------------------------------------
Dividends (net of foreign tax of $86,570) $ 21,359,656
- --------------------------------------------------------------------------------------------------
Interest 1,204,799
- --------------------------------------------------------------------------------------------------
Total investment income 22,564,455
Expenses:
- --------------------------------------------------------------------------------------------------
Compensation of Manager (Note 2) 4,716,037
- --------------------------------------------------------------------------------------------------
Investor servicing and custodian fees (Note 2) 1,666,320
- --------------------------------------------------------------------------------------------------
Compensation of Trustees (Note 2) 28,550
- --------------------------------------------------------------------------------------------------
Administrative services (Note 2) 11,324
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class A (Note 2) 908,217
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class B (Note 2) 4,352,576
- --------------------------------------------------------------------------------------------------
Distribution fees -- Class M (Note 2) 405,248
- --------------------------------------------------------------------------------------------------
Amortization of organization expenses (Note 1) 4,966
- --------------------------------------------------------------------------------------------------
Reports to shareholders 29,203
- --------------------------------------------------------------------------------------------------
Registration fees 126,163
- --------------------------------------------------------------------------------------------------
Auditing 18,502
- --------------------------------------------------------------------------------------------------
Postage 88,916
- --------------------------------------------------------------------------------------------------
Other 46,232
- --------------------------------------------------------------------------------------------------
Total expenses 12,402,254
- --------------------------------------------------------------------------------------------------
Expense reduction (Note 2) (280,486)
- --------------------------------------------------------------------------------------------------
Net expenses 12,121,768
- --------------------------------------------------------------------------------------------------
Net investment income 10,442,687
- --------------------------------------------------------------------------------------------------
Net realized gain on investments (Notes 1 and 3) 96,770,076
- --------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments during the period 81,577,151
- --------------------------------------------------------------------------------------------------
Net gain on investments 178,347,227
- --------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations $188,789,914
- --------------------------------------------------------------------------------------------------
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
1997* 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net assets
- ----------------------------------------------------------------------------------------------------------------------
Operations:
- ----------------------------------------------------------------------------------------------------------------------
Net investment income $ 10,442,687 $ 14,743,055
- ----------------------------------------------------------------------------------------------------------------------
Net realized gain on investments 96,770,076 80,045,414
- ----------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation of investments 81,577,151 135,233,459
- ----------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations 188,789,914 230,021,928
- ----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
- ----------------------------------------------------------------------------------------------------------------------
From net investment income
Class A (6,391,325) (7,210,359)
- ----------------------------------------------------------------------------------------------------------------------
Class B (4,889,833) (5,423,325)
- ----------------------------------------------------------------------------------------------------------------------
Class M (729,045) (800,684)
- ----------------------------------------------------------------------------------------------------------------------
From net realized gain on investments
Class A (34,851,194) (7,801,899)
- ----------------------------------------------------------------------------------------------------------------------
Class B (42,132,997) (8,303,604)
- ----------------------------------------------------------------------------------------------------------------------
Class M (5,275,939) (1,049,659)
- ----------------------------------------------------------------------------------------------------------------------
Increase from capital share transactions (Note 4) 403,180,381 753,262,427
- ----------------------------------------------------------------------------------------------------------------------
Total increase in net assets 497,699,962 952,694,825
Net assets
- ----------------------------------------------------------------------------------------------------------------------
Beginning of period 1,496,217,614 543,522,789
- ----------------------------------------------------------------------------------------------------------------------
End of period (including undistributed net investment
income of $753,212 and $2,320,728, respectively) $1,993,917,576 $1,496,217,614
- ----------------------------------------------------------------------------------------------------------------------
* 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 Year ended Jan. 5, 1995+
operating performance (Unaudited) Nov. 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.11 $11.01 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .11 .23 .15
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.27 2.41 2.45
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.38 2.64 2.60
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.12) (.21) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.71) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.83) (.54) (.12)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.66 $13.11 $11.01
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 11.39 * 24.95 30.62 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $848,287 $637,204 $250,328
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .52 * 1.09 1.35 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .82 * 1.92 2.03 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.58 * 83.97 64.18 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0462 $.0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Year ended Jan. 5, 1995+
operating performance (Unaudited) Nov. 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.03 $10.96 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .06 .15 .11
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.27 2.39 2.42
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.33 2.54 2.53
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.08) (.14) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.71) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.79) (.47) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.57 $13.03 $10.96
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 11.00 * 23.98 29.72 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $1,020,438 $763,438 $259,789
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .89 * 1.84 2.03 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .44 * 1.17 1.36 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.58 * 83.97 64.18 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0462 $.0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
<TABLE>
<CAPTION>
Financial highlights
(For a share outstanding throughout the period)
CLASS M
- ------------------------------------------------------------------------------------------------------------------------------------
Six months
ended For the period
Per-share May 31 Year ended Jan. 5, 1995+
operating performance (Unaudited) Nov. 30 to Nov. 30
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value,
beginning of period $13.06 $10.98 $8.53
- ------------------------------------------------------------------------------------------------------------------------------------
Investment operations
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income .08 .18 .12
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain on investments 1.26 2.39 2.43
- ------------------------------------------------------------------------------------------------------------------------------------
Total from
investment activities 1.34 2.57 2.55
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
From net
investment income (.09) (.16) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
From net realized gain
on investments (.71) (.33) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (.80) (.49) (.10)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value,
end of period $13.60 $13.06 $10.98
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return
at net asset value (%)(a) 11.10 * 24.28 30.04 *
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $125,193 $95,576 $33,406
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets (%)(b) .77 * 1.59 1.80 *
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
to average net assets (%) .57 * 1.42 1.58 *
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 35.58 * 83.97 64.18 *
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission
rate paid (c) $.0462 $.0493
- ------------------------------------------------------------------------------------------------------------------------------------
+ Commencement of operations.
* Not annualized.
(a) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(b) The ratio of expenses to average net assets includes amounts paid through expense offset
arrangements and brokerage service arrangements. (Note 2).
(c) Average commission rate paid on security trades is required for fiscal periods beginning on or after
September 1, 1995.
</TABLE>
Notes to financial statements
May 31, 1997 (Unaudited)
Note 1
Significant accounting policies
Putnam Growth and Income Fund II , the ("fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The fund seeks capital growth as a primary
objective and current income as a secondary objective by investing primarily
in a portfolio of common stocks that offer the potential for capital growth,
current income or both.
The fund offers class A, class B and class M shares. Class A shares are sold
with a maximum front-end sales charge of 5.75%. Class B shares, which convert
to class A shares after approximately eight years, do not pay a front-end
sales charge, but pay a higher ongoing distribution fee than class A shares,
and are subject to a contingent deferred sales charge, if those shares are
redeemed within six years of purchase. Class M shares are sold with a maximum
front-end sales charge of 3.50% and pay an ongoing distribution fee that is
lower than class B shares and higher than class A 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
followed by the fund in the preparation of its financial statements. The
preparation of financial statements is in conformity with generally accepted
accounting principles and requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities. Actual
results could differ from those estimates.
A) Security valuation Investments for which market quotations are readily
available are stated at market value, which is determined using the last
reported sale price, or, if no sales are reported -- as in the case of some
securities traded over-the-counter -- the last reported bid price, except that
certain U.S. government obligations are stated at the mean between the bid and
asked prices. Short-term investments having remaining maturities of 60 days or
less are stated at amortized cost which approximates market, and other
investments are stated at fair value following procedures approved by the
Trustees.
B) Joint trading account Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the fund may transfer uninvested cash
balances into a joint trading account along with the cash of other registered
investment companies and certain other accounts managed by Putnam Investment
Management, Inc. ("Putnam Management"), the fund's Manager, a wholly-owned
subsidiary of Putnam Investments, Inc.. These balances may be invested in one
or more repurchase agreements and/or short-term money market instruments.
C) Repurchase agreements The fund, or any joint trading account, through its
custodian, receives delivery of the underlying securities, the market value of
which at the time of purchase is required to be in an amount at least equal to
the resale price, including accrued interest. Putnam Management is responsible
for determining that the value of these underlying securities is at all times
at least equal to the resale price, including accrued interest.
D) Security transactions and related investment income Security transactions
are accounted for on the trade date (date the order to buy or sell is
executed). Interest income is recorded on the accrual basis. Dividend income
is recorded on the ex-dividend date except that certain dividends from foreign
securities are recorded as soon as the fund is informed of the ex-dividend
date.
E) 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.
F) 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.
G) Unamortized organization expenses Expenses incurred by the fund in
connection with its organization, its registration with the Securities and
Exchange Commission and with various states and the initial public offering of
its shares were $74,298. These expenses are being amortized on projected net
asset levels over a five-year period. The fund will reimburse Putnam
Management for the payment of these expenses.
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% of any excess
thereafter.
The fund reimburses Putnam Management 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 wholly-owned 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, 1997, fund expenses were reduced by $280,486
under expense offset arrangements with PFTC and brokerage service
arrangements. Investor servicing and custodian fees reported in the Statement
of operations exclude these credits. The fund could have invested a portion of
the assets utilized in connection with the expense offset arrangements in an
income producing asset if it had not entered into such arrangements.
Trustees of the fund receive an annual Trustees fee of $1,920 and an
additional fee for each Trustee's meeting attended. Trustees who are not
interested persons of Putnam Management and who serve on committees of the
Trustees receive additional fees for attendance at certain committee meetings.
The fund has adopted a Trustee Fee Deferral Plan (the "Plan") which allows the
Trustees to defer the receipt of all or a portion of Trustees Fees payable on
or after July 1, 1995. The deferred fees remain in the fund and are invested
in certain Putnam funds until distribution in accordance with the Plan.
The fund has adopted an unfunded noncontributory defined benefit pension plan
(the "Pension Plan") covering all Trustees of the fund who have served as
Trustee for at least five years. Benefits under the Pension Plan are equal to
50% of the Trustee's average total retainer and meeting fees for the three
years preceding retirement. Pension expense for the fund is included in
Compensation of trustees in the Statement of operations. Accrued pension
liability is included in Payable for compensation of Trustees in the Statement
of assets and liabilities.
The fund has adopted distribution plans (the "Plans") with respect to its
class A, class B and class M shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. The purpose of the Plans is to compensate
Putnam Mutual Funds Corp., a wholly-owned subsidiary of Putnam Investments
Inc., for services providedit 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 six months ended May 31, 1997, Putnam Mutual Funds Corp., acting as
underwriter received net commissions of $760,981 and $56,082 from the sale of
class A and class M shares, respectively and $678,851 in contingent deferred
sales charges from redemptions of class B shares. A deferred sales charge of
up to 1% is assessed on certain redemptions of class A shares. For the six
months ended May 31, 1997, Putnam Mutual Funds Corp., acting as underwriter
received $2,572 on class A redemptions.
Note 3
Purchase and sales of securities
During the six months ended May 31, 1997, purchases and sales of investment
securities other than short-term investments aggregated $865,453,480 and
$591,078,816, respectively. There were no purchases and sales of U.S.
government obligations. In determining the net gain or loss on securities sold,
the cost of securities has been determined on the identified cost basis.
Note 4
Capital shares
At May 31, 1997, there was an unlimited number of shares of beneficial
interest authorized. Transactions in capital shares were
as follows:
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 17,605,896 $ 225,681,726
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,270,407 39,549,981
- ------------------------------------------------------------
20,876,303 265,231,707
Shares
repurchased (7,376,754) (94,939,384)
- ------------------------------------------------------------
Net increase 13,499,549 $ 170,292,323
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class A Shares Amount
- ------------------------------------------------------------
Shares sold 30,647,039 $ 357,129,920
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,271,731 14,216,349
- ------------------------------------------------------------
31,918,770 371,346,269
Shares
repurchased (6,063,890) (71,076,075)
- ------------------------------------------------------------
Net increase 25,854,880 $ 300,270,194
- ------------------------------------------------------------
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 17,546,405 $ 223,593,370
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 3,729,136 44,763,218
- ------------------------------------------------------------
21,275,541 268,356,588
Shares
repurchased (4,645,811) (59,202,045)
- ------------------------------------------------------------
Net increase 16,629,730 $ 209,154,543
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class B Shares Amount
- ------------------------------------------------------------
Shares sold 39,226,124 $ 454,975,416
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 1,170,898 12,989,000
- ------------------------------------------------------------
40,397,022 467,964,416
Shares
repurchased (5,524,455) (64,550,693)
- ------------------------------------------------------------
Net increase 34,872,567 $ 403,413,723
- ------------------------------------------------------------
Six months ended
May 31, 1997
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 2,103,811 $ 26,833,304
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 470,449 5,666,163
- ------------------------------------------------------------
2,574,260 32,499,467
Shares
repurchased (688,828) (8,765,952)
- ------------------------------------------------------------
Net increase 1,885,432 $ 23,733,515
- ------------------------------------------------------------
Year ended
November 30, 1996
- ------------------------------------------------------------
Class M Shares Amount
- ------------------------------------------------------------
Shares sold 4,835,305 $ 56,263,450
- ------------------------------------------------------------
Shares issued in
connection with
reinvestment of
distributions 157,977 1,757,844
- ------------------------------------------------------------
4,993,282 58,021,294
Shares
repurchased (719,633) (8,442,784)
- ------------------------------------------------------------
Net increase 4,273,649 $ 49,578,510
- ------------------------------------------------------------
Fund information
INVESTMENT MANAGER
Putnam Investment
Management, Inc.
One Post Office Square
Boston, MA 02109
MARKETING SERVICES
Putnam Mutual Funds Corp.
One Post Office Square
Boston, MA 02109
CUSTODIAN
Putnam Fiduciary Trust Company
LEGAL COUNSEL
Ropes & Gray
TRUSTEES
George Putnam, Chairman
William F. Pounds, Vice Chairman
Jameson Adkins Baxter
Hans H. Estin
John A. Hill
Ronald J. Jackson
Elizabeth T. Kennan
Lawrence J. Lasser
Robert E. Patterson
Donald S. Perkins
George Putnam, III
A.J.C. Smith
W. Nicholas Thorndike
OFFICERS
George Putnam
President
Charles E. Porter
Executive Vice President
Patricia C. Flaherty
Senior Vice President
John D. Hughes
Senior Vice President and Treasurer
Lawrence J. Lasser
Vice President
Gordon H. Silver
Vice President
Ian C. Ferguson
Vice President
Thomas V. Reilly
Vice President
Anthony I. Kreisel
Vice President and Fund Manager
William N. Shiebler
Vice President
John R. Verani
Vice President
Paul M. O'Neil
Vice President
Beverly Marcus
Clerk and Assistant Treasurer
This report is for the information of shareholders of Putnam Growth and Income
Fund II. It may also be used as sales literature when preceded or accompanied
by the current prospectus, which gives details of sales charges, investment
objectives, and operating policies of the fund, and the most recent copy of
Putnam's Quarterly Performance Summary. For more information, or to request a
prospectus, call toll free: 1-800-225-1581. You can also learn more at Putnam
Investments' website: http://www.putnaminv.com.
Shares of mutual funds are not deposits or obligations of, or guaranteed or
endorsed by, any financial institution, are not insured by the Federal Deposit
Insurance Corporation (FDIC), the Federal Reserve Board or any other agency,
and involve risk, including the possible loss of 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
- --------------------
34397-949/990/096 7/97
